Document
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
FORM 10-Q 
_____________________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            

Commission file number: 001-35355
 _____________________________________________________________
MANNING & NAPIER, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________________________
Delaware
 
45-2609100
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
290 Woodcliff Drive
Fairport, New York
 
14450
(Address of principal executive offices)
 
(Zip Code)

(585) 325-6880
(Registrant’s telephone number, including area code)
_____________________________________________________________ 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock, $0.01 par value per share
MN
New York Stock Exchange
Common Stock Purchase Rights
MN
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer
 
¨
  
Accelerated filer
 
¨

 
 
 
 
Non-accelerated filer
 
x
  
Smaller reporting company
 
x
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 
Class
  
Outstanding at May 12, 2020
Class A common stock, $0.01 par value per share
  
16,275,359
 




TABLE OF CONTENTS
 
 
 
Page
Part I
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
Part II
 
Item 1A.
Item 6.
 
 
 
 
In this Quarterly Report on Form 10-Q, “we”, “our”, “us”, the “Company”, “Manning & Napier” and the “Registrant” refers to Manning & Napier, Inc. and, unless the context otherwise requires, its consolidated direct and indirect subsidiaries and predecessors.
 
 


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Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Manning & Napier, Inc.
Consolidated Statements of Financial Condition
(U.S. dollars in thousands, except share data)
 
 
 
March 31, 2020
 
December 31, 2019
 
 
(unaudited)
 
 
Assets
 
 
 
 
Cash and cash equivalents
 
$
75,019

 
$
67,088

Accounts receivable
 
9,506

 
10,182

Investment securities
 
71,043

 
90,467

Prepaid expenses and other assets
 
13,614

 
5,607

Total current assets
 
169,182

 
173,344

Property and equipment, net
 
4,000

 
4,565

Operating lease right-of-use assets
 
18,157

 
18,795

Net deferred tax assets, non-current
 
19,311

 
20,668

Goodwill
 
4,829

 
4,829

Other long-term assets
 
3,821

 
4,010

Total assets
 
$
219,300

 
$
226,211

 
 
 
 
 
Liabilities
 
 
 
 
Accounts payable
 
$
1,305

 
$
1,614

Accrued expenses and other liabilities
 
20,222

 
26,201

Deferred revenue
 
11,045

 
10,759

Total current liabilities
 
32,572

 
38,574

Operating lease liabilities, non-current
 
18,163

 
18,753

Amounts payable under tax receivable agreement, non-current
 
16,411

 
17,246

Other long-term liabilities
 
1,175

 
2,017

Total liabilities
 
68,321

 
76,590

Commitments and contingencies (Note 9)
 


 


Shareholders’ equity
 
 
 
 
Class A common stock, $0.01 par value; 300,000,000 shares authorized; and 16,275,359 and 15,956,526 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
 
163

 
160

Additional paid-in capital
 
198,722

 
198,516

Retained deficit
 
(37,953
)
 
(38,478
)
Accumulated other comprehensive loss
 
(134
)
 
(50
)
Total shareholders’ equity
 
160,798

 
160,148

Noncontrolling interests
 
(9,819
)
 
(10,527
)
Total shareholders’ equity and noncontrolling interests
 
150,979

 
149,621

Total liabilities, shareholders’ equity and noncontrolling interests
 
$
219,300

 
$
226,211

The accompanying notes are an integral part of these consolidated financial statements.


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Table of Contents

Manning & Napier, Inc.
Consolidated Statements of Operations
(U.S. dollars in thousands, except share data)
(Unaudited)
 
 
 
Three months ended March 31,
 
 
2020
 
2019
Revenues
 
 
 
 
Management Fees
 
 
 
 
Wealth Management
 
$
14,300

 
$
16,469

Institutional and Intermediary
 
12,131

 
13,234

Distribution and shareholder servicing
 
2,390

 
2,624

Custodial services
 
1,599

 
1,745

Other revenue
 
689

 
725

Total revenue
 
31,109

 
34,797

Expenses
 
 
 
 
Compensation and related costs
 
19,263

 
21,448

Distribution, servicing and custody expenses
 
2,813

 
3,758

Other operating costs
 
7,097

 
8,307

Total operating expenses
 
29,173

 
33,513

Operating income
 
1,936

 
1,284

Non-operating income (loss)
 
 
 
 
Interest expense
 
(2
)
 
(3
)
Interest and dividend income
 
357

 
809

Change in liability under tax receivable agreement
 
(2,850
)
 
195

Net gains (losses) on investments
 
(1,832
)
 
874

Total non-operating income (loss)
 
(4,327
)
 
1,875

Income (loss) before provision for (benefit from) income taxes
 
(2,391
)
 
3,159

Provision for (benefit from) income taxes
 
(3,226
)
 
242

Net income attributable to controlling and noncontrolling interests
 
835

 
2,917

Less: net income (loss) attributable to noncontrolling interests
 
(23
)
 
2,356

Net income attributable to Manning & Napier, Inc.
 
$
858

 
$
561

 
 
 
 
 
Net income per share available to Class A common stock
 
 
 
 
Basic
 
$
0.05

 
$
0.04

Diluted
 
$
0.01

 
$
0.03

Weighted average shares of Class A common stock outstanding
 
 
 
 
Basic
 
15,812,951

 
14,927,265

Diluted
 
77,907,557

 
78,581,169

The accompanying notes are an integral part of these consolidated financial statements.


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Table of Contents

Manning & Napier, Inc.
Consolidated Statements of Comprehensive Income
(U.S. dollars in thousands)
(Unaudited)
 
 
 
Three months ended March 31,
 
 
2020
 
2019
Net income attributable to controlling and noncontrolling interests
 
$
835

 
$
2,917

Net unrealized holding gains (losses) on investment securities, net of tax
 
(428
)
 
115

Reclassification adjustment for net realized gains on investment securities included in net income
 
(33
)
 
(14
)
Comprehensive income
 
$
374

 
$
3,018

Less: Comprehensive income attributable to noncontrolling interests
 
(400
)
 
2,436

Comprehensive income attributable to Manning & Napier, Inc.
 
$
774

 
$
582


The accompanying notes are an integral part of these consolidated financial statements.


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Table of Contents

Manning & Napier, Inc.
Consolidated Statements of Shareholders’ Equity
(U.S. dollars in thousands, except share data)
(Unaudited) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock –  Class A
 
Additional
Paid in Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive Income (Loss)
 
Non
Controlling
Interests
 
 
 
Shares
 
Amount
 
 
 
 
 
Total
Three months ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance—December 31, 2019
15,956,526

 
$
160

 
$
198,516

 
$
(38,478
)
 
$
(50
)
 
$
(10,527
)
 
$
149,621

Net income

 

 

 
858

 

 
(23
)
 
835

Distributions to noncontrolling interests

 

 

 

 

 

 

Net changes in unrealized investment securities gains or losses

 

 

 

 
(84
)
 
(344
)
 
(428
)
Common stock issued under equity compensation plan, net of forfeitures
318,833

 
3

 
(3
)
 

 

 

 

Shares withheld to satisfy tax withholding requirements related to equity awards vested

 

 

 

 

 
(2
)
 
(2
)
Equity-based compensation

 

 
252

 

 

 
1,034

 
1,286

Dividends declared on Class A common stock - $0.02 per share

 

 

 
(333
)
 

 

 
(333
)
Impact of changes in ownership of Manning & Napier Group, LLC (Note 4)

 

 
(43
)
 

 

 
43

 

Balance—March 31, 2020
16,275,359

 
$
163

 
$
198,722

 
$
(37,953
)
 
$
(134
)
 
$
(9,819
)
 
$
150,979

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock –  Class A
 
Additional
Paid in Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive Income (Loss)
 
Non
Controlling
Interests
 
 
 
Shares
 
Amount
 
 
 
 
 
Total
Three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance—December 31, 2018
15,310,958

 
$
153

 
$
198,604

 
$
(38,865
)
 
$
(77
)
 
$
(13,572
)
 
$
146,243

Net income

 

 

 
561

 

 
2,356

 
2,917

Distributions to noncontrolling interests

 

 

 

 

 
(1,620
)
 
(1,620
)
Net changes in unrealized investment securities gains or losses

 

 

 

 
21

 
94

 
115

Common stock issued under equity compensation plan, net of forfeitures
373,615

 
4

 
(4
)
 

 

 

 

Equity-based compensation

 

 
272

 

 

 
1,193

 
1,465

Dividends declared on Class A common stock - $0.02 per share

 

 

 
(288
)
 

 

 
(288
)
Cumulative effect of change in accounting principle, net of taxes

 

 

 
76

 

 

 
76

Impact of changes in ownership of Manning & Napier Group, LLC

 

 
(61
)
 

 

 
61

 

Balance—March 31, 2019
15,684,573

 
$
157

 
$
198,811

 
$
(38,516
)
 
$
(56
)
 
$
(11,488
)
 
$
148,908

The accompanying notes are an integral part of these consolidated financial statements.

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Manning & Napier, Inc.
Consolidated Statements of Cash Flows
(U.S. dollars in thousands)
(Unaudited)
 
 
 
Three months ended March 31,
 
 
2020
 
2019
Cash flows from operating activities:
 
 
 
 
Net income attributable to controlling and noncontrolling interests
 
$
835

 
$
2,917

Adjustment to reconcile net income to net cash provided by operating activities:
 
 
 
 
Equity-based compensation
 
1,286

 
1,465

Depreciation and amortization
 
378

 
403

Change in amounts payable under tax receivable agreement
 
2,850

 
(195
)
Gain on sale of intangible assets
 
(19
)

(56
)
Net (gains) losses on investment securities
 
1,832

 
(874
)
Deferred income taxes
 
(3,734
)
 
158

(Increase) decrease in operating assets and increase (decrease) in operating liabilities:
 
 
 
 
Accounts receivable
 
676

 
695

Prepaid expenses and other assets
 
(2,528
)
 
(960
)
Other long-term assets
 
767


660

Accounts payable
 
(309
)
 
134

Accrued expenses and other liabilities
 
(9,761
)
 
(10,458
)
Deferred revenue
 
285

 
(266
)
Other long-term liabilities
 
(1,534
)
 
(500
)
Net cash used in operating activities
 
(8,976
)
 
(6,877
)
Cash flows from investing activities:
 
 
 
 
Purchase of property and equipment
 
76

 
(576
)
Sale of investments
 
17,518

 
2,015

Purchase of investments
 
(10,520
)
 
(15,301
)
Sale of intangible assets
 
19


56

Proceeds from maturity of investments
 
10,165

 
17,358

Net cash provided by investing activities
 
17,258

 
3,552

Cash flows from financing activities:
 
 
 
 
Distributions to noncontrolling interests
 

 
(1,620
)
Dividends paid on Class A common stock
 
(319
)
 
(306
)
Payment of shares withheld to satisfy withholding requirements
 
(2
)
 

Payment of capital lease obligations
 
(30
)
 
(27
)
Net cash used in financing activities
 
(351
)
 
(1,953
)
Net increase (decrease) in cash and cash equivalents
 
7,931

 
(5,278
)
Cash and cash equivalents:
 
 
 
 
Beginning of period
 
67,088

 
59,586

End of period
 
$
75,019

 
$
54,308

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

Manning & Napier, Inc.
Notes to Consolidated Financial Statements

Note 1—Organization and Nature of the Business
Manning & Napier, Inc. ("Manning & Napier" or the "Company") provides a broad range of investment solutions through separately managed accounts, mutual funds, and collective investment trust funds, as well as a variety of consultative services that complement its investment process. Founded in 1970, the Company offers equity, fixed income and alternative strategies, as well as a range of blended asset portfolios, including life cycle funds. Headquartered in Fairport, New York, the Company serves a diversified client base of high-net-worth individuals and institutions, including 401(k) plans, pension plans, Taft-Hartley plans, endowments and foundations.
The Company was incorporated in 2011 as a Delaware corporation, and is the sole managing member of Manning & Napier Group, LLC and its subsidiaries (“Manning & Napier Group”), a holding company for the investment management businesses conducted by its operating subsidiaries. The diagram below depicts the Company's organizational structure as of March 31, 2020.
https://cdn.kscope.io/84cd718d5772d66e12c6475a4f3cf1a9-a33120ownershipgraphica01.jpg 
(1)
The consolidated operating subsidiaries of Manning & Napier Group include Manning & Napier Advisors, LLC ("MNA"), Manning & Napier Information Services, LLC, Manning & Napier Investor Services, Inc., Exeter Trust Company and Rainier Investment Management, LLC ("Rainier").
Note 2—Summary of Significant Accounting Policies
Critical Accounting Policies
The Company's critical accounting policies and estimates are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2019. The Company believes that the disclosures herein are adequate so that the information presented is not misleading; however, these financial statements should be read in conjunction with the financial statements and the notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The financial data for the interim periods may not necessarily be indicative of results for future interim periods or for the full year.
Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and related rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting and include all adjustments, consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim period.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates or assumptions that affect the reported amounts and disclosures in the consolidated financial statements. Actual results could differ from these estimates or assumptions.
Summary of Presentation Changes
As of January 1, 2020, the Company revised its presentation of investment management revenue within its consolidated statements of operations. Investment management revenue, previously presented by investment vehicle, has been disaggregated

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Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

to present investment management revenue by sales channel. Concurrently, the Company revised the presentation of assets under management ("AUM") activity previously reported by investment vehicle to present this activity by sales channel.
Amounts for the comparative prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported net income and do not represent a restatement of any previously published financial results.
Principles of Consolidation
The Company consolidates all majority-owned subsidiaries. In addition, as of March 31, 2020, Manning & Napier holds an economic interest of approximately 19.5% in Manning & Napier Group but, as managing member, controls all of the business and affairs of Manning & Napier Group. As a result, the Company consolidates the financial results of Manning & Napier Group and records a noncontrolling interest on its consolidated statements of financial condition with respect to the remaining economic interest in Manning & Napier Group held by Manning & Napier Group Holdings, LLC (“M&N Group Holdings”) and Manning & Napier Capital Company, LLC (“MNCC”).
All material intercompany transactions have been eliminated in consolidation.
In accordance with Accounting Standards Update ("ASU") 2015-02, Consolidation (Topic 810) – Amendments to the Consolidation Analysis, the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design, a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance, and whether a company is obligated to absorb losses or receive benefits that could potentially be significant to the entity. The standard also requires ongoing assessments of whether a company is the primary beneficiary of a variable interest entity (“VIE”). When utilizing the voting interest entity ("VOE") model, controlling financial interest is generally defined as majority ownership of voting interests.
The Company provides seed capital to its investment teams to develop new strategies and services for its clients. The original seed investment may be held in a separately managed account, comprised solely of the Company's investments or within a mutual fund, where the Company's investments may represent all or only a portion of the total equity investment in the mutual fund. Pursuant to U.S. GAAP, the Company evaluates its investments in mutual funds on a regular basis and consolidates such mutual funds for which it holds a controlling financial interest. When no longer deemed to hold a controlling financial interest, the Company would deconsolidate the fund and classify the remaining investment as either an equity method investment, equity investments, at fair value, or as trading securities, as applicable. As of March 31, 2020 and December 31, 2019, the Company did not have investments classified as an equity method investment.
The Company serves as the investment adviser for Manning & Napier Fund, Inc. series of mutual funds (the “Fund”), Exeter Trust Company Collective Investment Trusts (“CIT”) and Rainier Multiple Investment Trust. The Fund, CIT and Rainier Multiple Investment Trust are legal entities, the business and affairs of which are managed by their respective boards of directors. As a result, each of these entities is a VOE. The Company holds, in limited cases, direct investments in a mutual fund (which are made on the same terms as are available to other investors) and consolidates each of these entities where it has a controlling financial interest or a majority voting interest. The Company's investments in the Fund amounted to approximately $2.6 million as of March 31, 2020 and $3.2 million as of December 31, 2019. As of March 31, 2020 and December 31, 2019, the Company did not have a controlling financial interest in any mutual fund.
Revenue
Investment Management: Investment management fees are computed as a percentage of AUM. The Company's performance obligation is a series of services that form part of a single performance obligation satisfied over time.
Separately managed accounts are paid in advance, typically for a semi-annual or quarterly period, or in arrears, typically for a monthly or quarterly period. When investment management fees are paid in advance, the Company defers the revenue as a contract liability and recognizes it over the applicable period. When investment management fees are paid in arrears, the Company estimates revenue and records a contract asset (accrued accounts receivable) based on AUM as of the most recent month end date.
Mutual funds and collective investment trust investment management revenue is calculated and earned daily based on AUM. Revenue is presented net of cash rebates and fees waived pursuant to contractual expense limitations of the funds. The Company also has agreements with third parties who provide recordkeeping and administrative services for employee benefit plans participating in the collective investment trusts. The Company is acting as an agent on behalf of the employee benefit plan sponsors, therefore, investment management revenue is recorded net of fees paid to third party service providers.
Distribution and shareholder servicing: The Company receives distribution and servicing fees for providing services to its affiliated mutual funds. Revenue is computed and earned daily based on a percentage of AUM. The performance obligation is a series of services that form part of a single performance obligation satisfied over time. The Company has agreements with third parties who provide distribution and administrative services for its mutual funds. The agreements are evaluated to

7

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

determine whether revenue should be reported gross or net of payments to third-party service providers. The Company controls the services provided and acts as a principal in the relationship. Therefore, distribution and shareholder servicing revenue is recorded gross of fees paid to third parties.
Custodial services: Custodial service fees are calculated as a percentage of the client’s market value with additional fees charged for certain transactions. For the safeguarding and administrative services that are subject to a percentage of market value fee, the Company's performance obligation is a series of services that form part of a single performance obligation satisfied over time. Revenue for transactions assigned a stand-alone selling price is recognized in the period in which the transaction is executed. Custodial service fees are billed monthly in arrears. The Company has agreements with third parties who provide safeguarding, recordkeeping and administrative services for their clients. The Company controls the services provided and acts as a principal in the relationship. Therefore, custodial service revenue is recorded gross of fees paid to third parties.
Cash and Cash Equivalents
The Company generally considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents are primarily held in operating accounts at major financial institutions and also in money market securities. Cash equivalents are stated at cost, which approximates market value due to the short-term maturity of these investments. The fair value of cash equivalents has been classified as Level 1 in accordance with the fair value hierarchy.
Investment Securities
Investment securities are classified as either trading, equity method investments or available-for-sale and are carried at fair value. Fair value is determined based on quoted market prices in active markets for identical or similar instruments.
Investment securities classified as equity investments, at fair value consist of equity securities and investments in mutual funds for which the Company provides advisory services. Realized and unrealized gains and losses on equity investments, at fair value or trading securities, as applicable, are recorded in net gains (losses) on investments in the consolidated statements of operations. At March 31, 2020, equity investments, at fair value consist of investments held by the Company to provide initial cash seeding for product development purposes and investments to hedge economic exposure to market movements on its deferred compensation plan.
Investment securities classified as available-for-sale consist of U.S. Treasury notes, corporate bonds and other short-term investments. Unrealized gains and losses on available-for-sale securities are excluded from earnings and are reported, net of deferred income tax, as a separate component of accumulated other comprehensive income in shareholders’ equity until realized. The Company periodically reviews each individual security position that has an unrealized loss, or impairment, to determine if that impairment is other-than-temporary. If impairment is determined to be other-than-temporary, the carrying value of the security will be written down to fair value and the loss will be recognized in earnings. Realized gains and losses on sales of available-for-sale securities are computed on a specific identification basis and are recorded in net gains (losses) on investments in the consolidated statements of operations.
Property and Equipment
Property and equipment is presented net of accumulated depreciation of approximately $11.8 million and $11.4 million as of March 31, 2020 and December 31, 2019, respectively.
Goodwill and Intangible Assets
Goodwill represents the excess cost over the fair value of the identifiable net assets of acquired companies. Identifiable intangible assets generally represent the cost of client relationships and investment management agreements acquired as well as trademarks. Goodwill and indefinite-lived assets are tested for impairment annually or more frequently if events or circumstances indicate that the carrying value may not be recoverable. Intangible assets subject to amortization are tested for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. Goodwill and intangible assets require significant management estimate and judgment, including the valuation and expected life determination in connection with the initial purchase price allocation and the ongoing evaluation for impairment.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, accrued expenses and other liabilities and operating lease liabilities, non-current on its consolidated statements of financial condition. Finance leases are included in other long-term assets, accrued expenses and other liabilities, and other long-term liabilities on its consolidated statements of financial condition.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are

8

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

recognized at commencement date based on the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate, for each identified lease, is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term. The operating lease ROU asset is reduced for any lease incentives. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components, which are combined for all classes of underlying assets.
Operating Segments
The Company operates in one segment, the investment management industry.
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements that currently exist in U.S. GAAP for capitalizing implementation costs incurred to develop or obtain internal-use software. Under the new standard, implementation costs are deferred and presented in the same financial statement caption on the consolidated statements of financial condition as a prepayment of related arrangement fees. The deferred costs are recognized over the term of the arrangement in the same financial statement caption in the consolidated statements of operations as the related fees of the arrangement. The Company adopted the provisions of this guidance using the prospective adoption approach, which does not require the restatement of prior years. The adoption of this ASU did not have a material impact on the Company's statement of operations as requirements under the standard are generally consistent with its previous accounting for cloud computing arrangements, with the primary difference being the classification of certain information in its statements of financial condition and related disclosures.
As of March 31, 2020, the Company had a total of approximately $2.3 million of capitalized implementation costs for hosting arrangements within prepaid expenses and other assets on its statements of financial condition, with no amounts in accumulated amortization and no amortization expense recognized during the three months ended March 31, 2020. At December 31, 2019, approximately $0.4 million of these costs were capitalized within property and equipment, net. The hosting arrangements that are service contracts include internal and external costs related to various technology additions in support of the Company's business. Amortization costs are recorded on a straight-line basis over the term of the hosting arrangement agreement.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. The ASU requires goodwill impairments to be measured on the basis of the fair value of the reporting unit relative to the reporting unit's carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. The adoption of this ASU had did not have a material impact on the Company's consolidated financial statements.
Note 3—Revenue
Disaggregated Revenue
The following table represents the Company’s wealth management and institutional and intermediary investment management revenue by investment portfolio during the three months ended March 31, 2020 and 2019:
 
 
Three months ended March 31, 2020
 
Three months ended March 31, 2019
 
 
Wealth Management
 
Institutional and Intermediary
 
Total
 
Wealth Management
 
Institutional and Intermediary
 
Total
 
 
(in thousands)
Blended Asset
 
$
11,942


$
8,186


$
20,128

 
$
13,498

 
$
7,828

 
$
21,326

Equity
 
2,165


3,619


5,784

 
2,761

 
4,957

 
7,718

Fixed Income
 
193


326


519

 
210

 
449

 
659

Total
 
$
14,300


$
12,131


$
26,431

 
$
16,469

 
$
13,234

 
$
29,703



9

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

Accounts Receivable
Accounts receivable as of March 31, 2020 and December 31, 2019 consisted of the following:
 
 
March 31, 2020
 
December 31, 2019
 
 
(in thousands)
Accounts receivable - third parties
 
$
5,787

 
$
5,778

Accounts receivable - affiliated mutual funds and collective investment trusts
 
3,719

 
4,404

Total accounts receivable
 
$
9,506

 
$
10,182

Accounts receivable represents the Company's unconditional rights to consideration arising from its performance under separately managed account, mutual fund and collective investment trust, distribution and shareholder servicing, and custodial service contracts. Accounts receivable balances do not include an allowance for doubtful accounts nor has any significant bad debt expense attributable to accounts receivable been recorded during the three months ended March 31, 2020 or 2019.
Advisory and Distribution Agreements
The Company earns investment advisory fees, distribution fees and administrative service fees under agreements with affiliated mutual funds and collective investment trusts. Fees earned for advisory and distribution services provided were approximately $8.9 million for the three months ended March 31, 2020, and approximately $11.1 million for the three months ended March 31, 2019, which represents greater than 25% of revenue in each period. The following provides amounts due from affiliated mutual funds and collective investment trusts reported within accounts receivable in the consolidated statements of financial condition as of March 31, 2020 and December 31, 2019:
 
 
March 31, 2020
 
December 31, 2019
 
 
(in thousands)
Affiliated mutual funds
 
$
2,682

 
$
3,164

Affiliated collective investment trusts
 
1,037

 
1,240

Accounts receivable - affiliated mutual funds and collective investment trusts
 
$
3,719

 
$
4,404


Contract assets and liabilities
Accrued accounts receivable: Accrued accounts receivable represents the Company's contract asset for revenue that has been recognized in advance of billing separately managed account contracts. Consideration for the period billed in arrears is dependent on the client’s AUM on a future billing date and therefore conditional as of the reporting period end. During the three months ended March 31, 2020, revenue was decreased by less than $0.1 million for changes in transaction price. Accrued accounts receivable of approximately $0.2 million and $0.3 million is reported within prepaid expenses and other assets in the consolidated statements of financial condition as of March 31, 2020 and December 31, 2019, respectively.
Deferred revenue: Deferred revenue is recorded when consideration is received or unconditionally due in advance of providing services to the Company's customer. Revenue recognized during the three months ended March 31, 2020 that was included in deferred revenue at the beginning of the period was approximately $8.3 million.
Costs to obtain a contract: Under compensation plans in effect for periods prior to January 1, 2020, certain incremental first year commissions directly associated with new customer contracts were capitalized and amortized on a straight-line basis over an estimated customer contract period of 3 to 7 years. The total net asset as of both March 31, 2020 and December 31, 2019 was approximately $1.0 million. The related amortization expense, which is included in compensation and related costs, totaled approximately $0.1 million for both of the three month periods ended March 31, 2020 and 2019. An impairment loss is recorded for contract acquisition costs related to client contracts that cancel during the period. These impairment losses totaled less than $0.1 million for both the three months ended March 31, 2020 and 2019.
Note 4—Noncontrolling Interests
Manning & Napier holds an economic interest of approximately 19.5% in Manning & Napier Group, but as managing member controls all of the business and affairs of Manning & Napier Group. As a result, the Company consolidates the financial results of Manning & Napier Group and records a noncontrolling interest on its consolidated statements of financial condition with respect to the remaining approximately 80.5% economic interest in Manning & Napier Group held by M&N Group Holdings and MNCC. Net income attributable to noncontrolling interests on the statements of operations represents the portion of earnings attributable to the economic interest in Manning & Napier Group held by the noncontrolling interests.

10

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

The following table provides a reconciliation from “Income (loss) before provision for (benefit from) income taxes” to “Net income attributable to Manning & Napier, Inc.”:
 
 
Three months ended March 31,
 
 
2020
 
2019
 
 
(in thousands)
Income (loss) before provision for (benefit from) income taxes
 
$
(2,391
)
 
$
3,159

Less: income (loss) before provision for (benefit from) income taxes of Manning & Napier, Inc. (1)
 
(2,866
)
 
191

Income before provision for (benefit from) income taxes, as adjusted
 
475

 
2,968

Controlling interest percentage (2)
 
19.5
%
 
18.6
%
Net income attributable to controlling interest
 
93

 
552

Plus: income (loss) before provision for (benefit from) income taxes of Manning & Napier, Inc. (1)
 
(2,866
)
 
191

Income (loss) before provision for (benefit from) income taxes attributable to Manning & Napier, Inc.
 
(2,773
)
 
743

Less: provision for (benefit from) income taxes of Manning & Napier, Inc.(3)
 
(3,631
)
 
182

Net income attributable to Manning & Napier, Inc.
 
$
858

 
$
561

________________________
(1)
Manning & Napier, Inc. incurs certain income or expenses that are only attributable to it and are therefore excluded from the net income attributable to noncontrolling interests.
(2)
Income before provision for (benefit from) income taxes is allocated to the controlling interest based on the percentage of units of Manning & Napier Group held by Manning & Napier, Inc. The amount represents the Company's weighted ownership of Manning & Napier Group for the respective periods.
(3)
The consolidated provision for income taxes is equal to the sum of (i) the provision for income taxes for entities other than Manning & Napier, Inc. and (ii) the provision for income taxes of Manning & Napier, Inc. which includes all U.S. federal and state income taxes. The consolidated provision for (benefit from) income taxes was a benefit of $3.2 million and provision of $0.2 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

As of March 31, 2020, a total of 62,034,200 units of Manning & Napier Group were held by the noncontrolling interests. Pursuant to the terms of the exchange agreement entered into at the time of the Company's initial public offering ("Exchange Agreement"), such units may be tendered for exchange. For any units exchanged, the Company will (i) pay an amount of cash equal to the number of units exchanged multiplied by the value of one share of the Company's Class A common stock less a market discount and expected expenses, or, at the Company's election, (ii) issue shares of the Company's Class A common stock on a one-for-one basis, subject to customary adjustments. As the Company receives units of Manning & Napier Group that are exchanged, the Company's ownership of Manning & Napier Group will increase. Refer to Note 14 for further discussion regarding an exchange of units that settled subsequent to March 31, 2020.
During the three months ended March 31, 2020, Class A common stock was issued under the Company's 2011 Equity Compensation Plan (the "Equity Plan") for which Manning & Napier, Inc. acquired an equivalent number of Class A units of Manning & Napier Group.
The following is the impact to the Company's equity ownership interest in Manning & Napier Group for the three months ended March 31, 2020:
 
Manning & Napier Group Class A Units Held
 
 
 

Manning & Napier
 
 
Noncontrolling Interests
 
Total
 
Manning & Napier Ownership %
As of December 31, 2019
14,750,221

 
62,034,200

 
76,784,421

 
19.2%
Class A Units issued
318,833

 

 
318,833

 
0.3%
Class A Units exchanged

 

 

 
—%
As of March 31, 2020
15,069,054

 
62,034,200

 
77,103,254

 
19.5%

11

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

Since the Company continues to have a controlling interest in Manning & Napier Group, the aforementioned changes in ownership of Manning & Napier Group were accounted for as equity transactions under ASC 810, Consolidation. Additional paid-in capital and noncontrolling interests in the consolidated statements of financial position are adjusted to reallocate the Company's historical equity to reflect the change in ownership of Manning & Napier Group.
At March 31, 2020 and December 31, 2019, the Company had recorded a liability of $20.4 million and $17.5 million, respectively, representing the estimated payments due to the selling unit holders under the tax receivable agreement ("TRA") entered into between Manning & Napier and the other holders of Class A Units of Manning & Napier Group. Of these amounts, approximately $4.0 million and $0.3 million were included in accrued expenses and other liabilities at March 31, 2020 and December 31, 2019, respectively. The Company made no payments pursuant to the TRA during either of the three months ended March 31, 2020 and 2019. Refer to Note 12 for further discussion surrounding the amounts payable under the TRA.
Obligations pursuant to the TRA are obligations of Manning & Napier. They do not impact the noncontrolling interests. These obligations are not income tax obligations. Furthermore, the TRA has no impact on the allocation of the provision for income taxes to the Company’s net income.
Note 5—Investment Securities
The following represents the Company’s investment securities holdings as of March 31, 2020 and December 31, 2019:
 
 
March 31, 2020
 
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
(in thousands)
Available-for-sale securities
 
 
 
 
 
 
 
 
U.S. Treasury notes
 
$
33,270

 
$
409

 
$

 
$
33,679

Fixed income securities
 
23,089

 

 
(734
)
 
22,355

Short-term investments
 
7,405

 

 

 
7,405

 
 
 
 
 
 
 
 
63,439

Equity investments, at fair value
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
5,044

Mutual funds
 
 
 
 
 
 
 
2,560

 
 
 
 
 
 
 
 
7,604

Total investment securities
 
 
 
 
 
 
 
$
71,043

 
 
December 31, 2019
 
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
(in thousands)
Available-for-sale securities
 
 
 
 
 
 
 
 
U.S. Treasury notes
 
$
33,908

 
$
193

 
$

 
$
34,101

Fixed income securities
 
35,148

 

 
(91
)
 
35,057

Short-term investments
 
12,119

 

 

 
12,119

 
 
 
 
 
 
 
 
81,277

Equity investments, at fair value
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
6,038

Mutual funds
 
 
 
 
 
 
 
3,152

 
 
 
 
 
 
 
 
9,190

Total investment securities
 
 
 
 
 
 
 
$
90,467

Investment securities are classified as either equity investments or available-for-sale and are carried at fair value. Fair value is determined based on quoted market prices in active markets for identical or similar instruments.
Investment securities classified as equity investments, at fair value consist of equity securities and investments in mutual funds for which the Company provides advisory services. At March 31, 2020 and December 31, 2019, equity investments, at fair value consist of investments held by the Company to provide initial cash seeding for product development purposes and investments in mutual funds to hedge economic exposure to market movements on its deferred compensation plan. The Company recognized approximately $1.8 million of net unrealized losses and $0.9 million of net unrealized gains related to

12

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

investments classified as equity investments, at fair value during the three months ended March 31, 2020 and 2019, respectively.
Investment securities classified as available-for-sale consist of U.S. Treasury notes, corporate bonds and other short-term investments to optimize cash management opportunities and for compliance with certain regulatory requirements. As of March 31, 2020 and December 31, 2019, approximately $0.6 million of these securities was considered restricted. The Company periodically reviews each individual security position that has an unrealized loss, or impairment, to determine if that impairment is other-than-temporary. No other-than-temporary impairment charges have been recognized by the Company during the three months ended March 31, 2020 and 2019.
Note 6—Fair Value Measurements
Fair value is defined as the price that the Company would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A fair value hierarchy is applied that gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The following three-tier fair value hierarchy prioritizes the inputs used in measuring fair value:
Level 1—observable inputs such as quoted prices in active markets for identical securities;
Level 2—other significant observable inputs (including but not limited to quoted prices for similar securities, interest rates, prepayment rates, credit risk, etc.); and
Level 3—significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).
The following table summarizes the hierarchy of inputs used to derive the fair value of the Company’s assets as of March 31, 2020 and December 31, 2019: 
 
 
March 31, 2020
 
 
Level 1
 
Level 2
 
Level 3
 
Totals
 
 
(in thousands)
Equity securities
 
$
5,044

 
$

 
$

 
$
5,044

Fixed income securities
 

 
22,355

 

 
22,355

Mutual funds
 
2,560

 

 

 
2,560

U.S. Treasury notes
 

 
33,679

 

 
33,679

Short-term investments
 

 
7,405

 

 
7,405

Total assets at fair value
 
$
7,604

 
$
63,439

 
$

 
$
71,043

 
 
December 31, 2019
 
 
Level 1
 
Level 2
 
Level 3
 
Totals
 
 
(in thousands)
Equity securities
 
$
6,038

 
$

 
$

 
$
6,038

Fixed income securities
 

 
35,057

 

 
35,057

Mutual funds
 
3,152

 

 

 
3,152

U.S. Treasury notes
 

 
34,101

 

 
34,101

Short-term investments
 

 
12,119

 

 
12,119

Total assets at fair value
 
$
9,190

 
$
81,277

 
$

 
$
90,467


Short-term investments consists of U.S. Treasury bills.
Valuations of investments in fixed income securities, U.S. Treasury notes and U.S. Treasury bills can generally be obtained through independent pricing services. For most bond types, the pricing service utilizes matrix pricing, which considers one or more of the following factors: yield or price of bonds of comparable quality, coupon, maturity, current cash flows, type and current day trade information, as well as dealer supplied prices. These valuations are categorized as Level 2 in the hierarchy.

13

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

The Company’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. There were no transfers between valuation levels during the three months ended March 31, 2020.
Note 7—Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities as of March 31, 2020 and December 31, 2019 consisted of the following:
 
 
March 31, 2020
 
December 31, 2019
 
 
(in thousands)
Accrued bonus and sales commissions
 
$
6,176

 
$
14,825

Accrued payroll and benefits
 
2,914

 
4,415

Accrued sub-transfer agent fees
 
384

 
420

Dividends payable on Class A common stock
 
326

 
312

Amounts payable under tax receivable agreement
 
3,960

 
275

Short-term operating lease liabilities
 
2,772

 
2,682

Other accruals and liabilities
 
3,690

 
3,272

Total accrued expenses and other liabilities
 
$
20,222

 
$
26,201

Note 8—Leases
Leases
The Company has operating and finance leases for office space and certain equipment. For these leases, the office space or equipment is an explicitly identified asset within the contract. The Company has determined that it has obtained substantially all of the economic benefits from the use of the underlying asset and directs how and for what purpose the asset is used during the term of the contract.
The Company's leases have remaining lease terms ranging between approximately 1 year and 8 years. The Company's lease term on certain of its multi-year office space leases, including its headquarters, include options for the Company to extend those leases for periods ranging from an additional five to ten years. In addition, the Company has the option to reduce a portion of its square footage at certain times throughout the term of the lease for its headquarters. The Company determined it is not reasonably certain at this time it will exercise the options to extend these leases or will exercise the options to reduce its square footage; therefore, the payment amounts related to these lease term extensions and contraction options have been excluded from determining its ROU asset and lease liability.
Certain of the Company's operating leases for office space include variable lease payments, including non-lease components (such as utilities and operating expenses) that vary based on actual expenses and are adjusted on an annual basis. The Company concluded that these variable lease payments are in substance fixed payments and included the estimated variable payments in its determination of ROU assets and lease liabilities.
Changes in the lease terms, including renewal options and options to reduce its square footage, incremental borrowing rates, and/or variable lease payments, and the corresponding impact to the ROU assets and lease liabilities, are recognized in the period incurred.
Certain of the Company's operating leases have been subleased for which the Company will receive cash totaling approximately $3.8 million over the remaining term of such leases. The lease terms for the three subleased operating leases end in 2021, 2027 and 2028.

14

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

The components of lease expense for the three months ended March 31, 2020 and 2019 were as follows:
 
 
Three months ended March 31,
 
 
2020
 
2019
 
(in thousands)
Finance lease expense
 
 
 
 
Amortization of right-of-use assets
 
$
25

 
29

Interest on lease liabilities
 
2

 
3

Operating lease expense
 
792

 
923

Short-term lease expense
 
1

 
4

Variable lease expense
 
75

 
46

Sublease income
 
(166
)
 
(123
)
Total lease expense
 
$
729

 
882


Supplemental cash flow information related to leases for the three months ended March 31, 2020 and 2019 were as follows:
 
 
Three months ended March 31,
 
 
2020
 
2019
 
 
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
Operating cash flows from finance leases
 
$
2

 
3

Finance cash flows from finance leases
 
$
27

 
27

Operating cash flows from operating leases
 
$
720

 
794

 
 
 
 
 
Right-of-use assets obtained in exchange for new lease obligations:
 
 
 
 
Finance leases
 
$

 
163

Operating leases
 
$
136

 


15

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

Supplemental balance sheet information related to leases as of March 31, 2020 was as follows:
(in thousands, except lease term and discount rate)
 
March 31, 2020
Finance Leases
 
 
Finance lease right-of-use assets (1)
 
$
174

 
 
 
Accrued expenses and other liabilities
 
$
80

Other long-term liabilities
 
104

Total finance lease liabilities
 
$
184

 
 
 
Operating Leases
 
 
Operating lease right-of-use assets
 
$
18,157

 
 
 
Accrued expenses and other liabilities
 
$
2,772

Operating lease liabilities, non-current
 
18,163

Total operating lease liabilities
 
$
20,935

 
 
 
Weighted average remaining lease term
 
 
Finance leases
 
2.73 years

Operating leases
 
7.18 years

Weighted average discount rate
 
 
Finance leases
 
4.81
%
Operating leases
 
5.13
%
_______________________
(1)
Amounts included in other long-term assets within the consolidated statements of financial condition.

Maturities of lease liabilities were as follows:
Twelve month period ending March 31,
 
Finance Leases
 
Operating Leases
 
 
(in thousands)
2021
 
$
87

 
$
3,717

2022
 
57

 
3,726

2023
 
33

 
3,504

2024
 
20

 
3,136

2025
 

 
3,030

Thereafter
 

 
7,929

Total lease payments
 
197

 
25,042

Less imputed interest
 
(13
)
 
(4,107
)
Total lease liabilities
 
$
184

 
$
20,935

Note 9—Commitments and Contingencies
The Company may from time to time enter into agreements that contain certain representations and warranties and which provide general indemnifications. The Company may also serve as a guarantor of such obligations. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. The Company expects any risk of liability associated with such guarantees to be remote.

16

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

Regulation
As an investment adviser to a variety of investment products, the Company and its affiliated broker-dealer are subject to routine reviews and inspections by the SEC and the Financial Industry Regulatory Authority, Inc. Additionally, the Company could be subject to non-routine reviews and inspections by the National Futures Association and U.S. Commodity Futures Trading Commission in regards to the Company’s de minimis exposure to commodity interest investments in the mutual funds and collective investment trust vehicles it operates. From time to time the Company may also be subject to claims, or be involved in various legal proceedings, arising in the ordinary course of its business and other contingencies. The Company does not believe that the outcome of any of these reviews, inspections or other legal proceedings will have a material impact on its consolidated financial statements; however, litigation is subject to many uncertainties, and the outcome of individual litigated matters is difficult to predict. The Company will establish accruals for matters that are probable, can be reasonably estimated, and may take into account any related insurance recoveries to the extent of such recoveries. As of March 31, 2020 and December 31, 2019, the Company has not accrued for any such claims, legal proceedings, or other contingencies.
Note 10—Earnings per Common Share
Basic earnings per share (“basic EPS”) is computed using the two-class method to determine net income available to Class A common stock. The two-class method includes an earnings allocation formula that determines earnings per share for each participating security according to dividends declared and undistributed earnings for the period. The Company's restricted Class A common shares granted under the Equity Plan have non-forfeitable dividend rights during their vesting period and are therefore considered participating securities under the two-class method. Under the two-class method, the Company's net income available to Class A common stock is reduced by the amount allocated to the unvested restricted Class A common stock. Basic EPS is calculated by dividing net income available to Class A common stock by the weighted average number of common shares outstanding during the period.
Diluted earnings per share (“diluted EPS”) is computed under the more dilutive of either the treasury method or the two-class method. For the diluted calculation, the weighted average number of common shares outstanding during the period is increased by the assumed conversion into Class A common stock of the unvested equity awards and the exchangeable Class A units of Manning & Napier Group, to the extent that such conversion would dilute earnings per share.
The following is a reconciliation of the income and share data used in the basic and diluted EPS computations for the three months ended March 31, 2020 and 2019 under the two-class method:
 
 
Three months ended March 31,
 
 
2020
 
2019
 
 
(in thousands, except share data)
Net income attributable to controlling and noncontrolling interests
 
$
835

 
$
2,917

Less: net income (loss) attributable to noncontrolling interests
 
(23
)
 
2,356

Net income attributable to Manning & Napier, Inc.
 
$
858

 
$
561

Less: allocation to participating securities
 
13

 
(5
)
Net income available to Class A common stock
 
$
845

 
$
566

 
 
 
 
 
Weighted average shares of Class A common stock outstanding - basic
 
15,812,951

 
14,927,265

Dilutive effect of unvested equity awards
 
60,406

 
304,183

Dilutive effect of exchangeable Class A Units
 
62,034,200

 
63,349,721

Weighted average shares of Class A common stock outstanding - diluted
 
77,907,557

 
78,581,169

Net income available to Class A common stock per share - basic
 
$
0.05

 
$
0.04

Net income available to Class A common stock per share - diluted
 
$
0.01

 
$
0.03

For the three months ended March 31, 2020 and 2019, 3,000,000 unvested performance-based stock options were excluded from the calculation of diluted EPS because the associated market condition had not yet been achieved.
For the three months ended March 31, 2020 and 2019, 1,276,391 and 1,413,560, respectively, unvested equity awards were excluded from the calculation of diluted EPS because the effect would have been anti-dilutive.
Note 11—Equity Based Compensation
The Equity Plan was adopted by the Company's board of directors and approved by shareholders prior to the consummation of the Company's 2011 initial public offering. Under the Equity Plan, a total of 13,142,813 equity interests are authorized for issuance, and may be issued in the form of Class A common stock, restricted stock units, stock options, units of

17

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

Manning & Napier Group, or certain classes of membership interests in the Company which may convert into units of Manning & Napier Group.
The following table summarizes activity related to awards of restricted stock and restricted stock units (collectively, "stock awards") under the Equity Plan for the three months ended March 31, 2020:
 
 
Stock Awards
 
Weighted Average Grant Date Fair Value
Outstanding at January 1, 2020
 
1,037,901

 
$
4.30

Granted
 
2,997,940

 
$
1.58

Vested
 
(321,665
)
 
$
1.64

Forfeited
 
(2,667
)
 
$
1.67

Outstanding at March 31, 2020
 
3,711,509

 
$
2.34

The weighted average fair value of stock awards granted during the three months ended March 31, 2020 was $1.58, based on the closing sale price of the Company's Class A common stock as reported on the New York Stock Exchange on the date of grant, and, if not entitled to dividends or dividend equivalents during the vesting period, reduced by the present value of such amounts expected to be paid on the underlying shares during the requisite service period.
For the three months ended March 31, 2020 and 2019, the Company recorded approximately $1.1 million and $1.4 million, respectively, of compensation expense related to stock awards under the Equity Plan. The aggregate intrinsic value of stock awards that vested during the three months ended March 31, 2020 and 2019 was approximately $0.5 million and $1.0 million, respectively. As of March 31, 2020, there was unrecognized compensation expense of approximately $6.3 million related to stock awards, which the Company expects to recognize over a weighted average period of approximately 3.5 years.
In connection with the vesting of restricted stock units during the three months ended March 31, 2020, the Company withheld a total of 2,832 shares of Class A common stock to satisfy less than $0.1 million of employee income tax withholding requirements. These net share settlements had the effect of shares repurchased and retired by the Company, as they reduced the total number of Class A common shares outstanding.
A summary of activity under the Equity Plan related to stock option awards during the three months ended March 31, 2020 is presented below:
 
 
Stock Option Awards
 
Weighted Average Exercise Price
 
Weighted Average Contractual Term
(years)
 
Aggregate
Intrinsic
 Value
 (in thousands)
Outstanding at January 1, 2020
 
3,500,000

 
$
2.01

 
 
 
 
Granted
 

 
$

 
 
 
 
Vested
 
(166,666
)
 
$
2.01

 
 
 
 
Forfeited
 

 
$

 
 
 
 
Outstanding at March 31, 2020
 
3,333,334

 
$
2.01

 
4.1
 
$

Exercisable at March 31, 2020
 
166,666

 
$
2.01

 
 
 
 
For both of the three month periods ended March 31, 2020 and 2019, the Company recorded approximately $0.1 million of compensation expense related to stock options under the Equity Plan. As of March 31, 2020, there was unrecognized compensation expense of approximately $0.8 million related to stock options, which the Company expects to recognize over a weighted average period of approximately 0.9 years.
Note 12—Income Taxes
The Company is comprised of entities that have elected to be treated as either a limited liability company ("LLC") or a “C-Corporation". As such, the entities functioning as LLCs are not liable for or able to benefit from U.S. federal and most state income taxes on their earnings, and earnings (losses) will be included in the personal income tax returns of each entity’s unit holders. The entities functioning as C-Corporations are liable for or able to benefit from U.S. federal and state and local income taxes on their earnings and losses, respectively.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which includes, among other things, the ability to carryback net operating losses from 2018, 2019 and 2020 to prior years.

18

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

As of December 31, 2019, the Company had approximately $12.1 million net operating losses available to offset future taxable income for federal income tax purposes and approximately $6.1 million for state income tax purposes. The Company expects to carryback net operating losses generated in 2018, 2019 and 2020 to prior years and claim refunds when the federal corporate tax rate was 34% compared to the current statutory rates of 21%. The Company recognized an income tax benefit of approximately $3.3 million, related to the favorable rate applied to its net operating losses. As a result, the Company increased its deferred tax asset related to the TRA, resulting in a $2.9 million increase of the liability, representing 85% of the applicable cash savings.
The Company’s income tax provision (benefit) and effective tax rate were as follows: 
 
 
Three months ended March 31,
 
 
2020
 
2019
 
 
(in thousands)
Income (loss) before provision for (benefit from) income taxes
 
$
(2,391
)
 
$
3,159

Effective tax rate
 
134.9
%
 
7.7
%
Provision for (benefit from) income taxes
 
(3,226
)
 
242

Provision for (benefit from) income taxes at statutory rate
 
(502
)
 
663

Difference between tax at effective vs. statutory rate
 
$
(2,724
)
 
$
(421
)
For both the three months ended March 31, 2020 and 2019, the difference between the Company’s recorded provision (benefit) and the provision that would result from applying the U.S. statutory rate of 21% includes the benefit resulting from the fact that a significant portion of the Company’s operations include a series of flow-through entities which are generally not subject to federal and most state income taxes. Accordingly, a portion of the Company’s earnings are not subject to corporate level taxes. For the three months ended March 31, 2020, the income tax benefit also includes the impact from the enactment of the CARES Act, which resulted in the recognition of an income tax benefit based on the ability to carry back net operating losses to prior years.
A specific state is currently auditing the Company's 2016 and 2017 corporate tax returns. The audit is expected to be completed in 2020. As of March 31, 2020, the audit is in process and the state is collecting and evaluating the data for which the Company has not recorded a liability for uncertain tax positions under ASC 740. The Company believes any potential increases to this liability, which could be up to approximately $1.2 million, would not result in a material change to its financial position.
Note 13—Related Party Transactions
Transactions with noncontrolling members
From time to time, the Company may be asked to provide certain services, including accounting, legal and other administrative functions for the noncontrolling members of Manning & Napier Group. While immaterial, the Company has not received any reimbursement for such services.
The Company manages the personal funds of certain of the Company's executive officers and directors and/or their affiliated entities. Pursuant to the respective investment management agreements, in some instances the Company may waive or reduce its regular advisory fees for these accounts. The aggregate value of the fees earned and the value of fees waived was less than $0.1 million for each of the three months ended March 31, 2020 and 2019.
Affiliated fund transactions
The Company earns investment advisory fees, distribution fees and administrative service fees under agreements with affiliated mutual funds and collective investment trusts. Fees earned for advisory and distribution services provided were approximately $8.9 million for the three months ended March 31, 2020, and approximately $11.1 million for the three months ended March 31, 2019. Fees earned for administrative services provided were approximately $0.4 million for the three months ended March 31, 2020, and approximately $0.5 million for the three months ended March 31, 2019. See Note 3 for disclosure of amounts due from affiliated mutual funds and collective investment trusts.
The Company incurs certain expenses on behalf of the collective investment trusts and has contractually agreed to limit its fees and reimburse expenses to limit operating expenses incurred by certain affiliated fund series. The aggregate value of fees waived and expenses reimbursed to, or incurred for, affiliated mutual funds and collective investment trusts were approximately $1.2 million for the three months ended March 31, 2020, and approximately $1.2 million for the three months ended March 31, 2019. As of March 31, 2020 the Company had recorded a receivable of approximately $0.2 million for expenses paid on behalf of an affiliated mutual fund. These expenses are reimbursable to the Company under an agreement

19

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)

with the affiliated mutual fund, and are included within other long-term assets on the consolidated statements of financial condition.
Note 14—Subsequent Events
Exchange of Class A units of Manning & Napier Group
As of March 31, 2020, a total of 62,034,200 units of Manning & Napier Group were held by the noncontrolling interests. Pursuant to the terms of the Exchange Agreement, such units may be tendered for exchange. On March 15, 2020, notice was provided that a total of 60,012,419 Class A units, including 59,957,419 units held by William Manning, who is also the Chairman of the Company's Board of Directors, would be tendered for cash or shares of the Company's Class common stock pursuant to the terms of the Exchange Agreement.
Subsequent to March 31, 2020, the independent directors, on behalf of the Company, decided to settle the exchange utilizing approximately $90.8 million in cash, including approximately $90.7 million paid to Mr. Manning, pursuant to the terms of the Exchange Agreement. The Company completed the exchange on May 11, 2020 with payment made from the Company's cash, cash equivalents and proceeds from the sale of investment securities. Subsequent to the exchange, the Class A units were retired and as a result, the Company's ownership of Manning & Napier Group increased from 19.5% to 88.2%.

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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This report contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which reflect the views of Manning & Napier, Inc. ("we," "our," or "us") with respect to, among other things, our future operations and financial performance. Words like "believes," "expects," "may," "estimates," "will," "should," "could," "intends," "likely," "plans," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, are used to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe. Some of the factors that could cause our actual results to differ materially from our expectations or beliefs are disclosed in the “Risk Factors” section, as well as other sections, of our Annual Report on Form 10-K, which include, without limitation: changes in securities or financial markets or general economic conditions; the impact of COVID-19 on the U.S. and global economy; the impact of the settlement of the exchange pursuant to the exchange agreement (the “Exchange Agreement”) between the Company, M&N Group Holdings, LLC (“M&N Group Holdings”) and Manning & Napier Capital Company, LLC (“MNCC”); a decline in the performance of our products; client sales and redemption activity; any loss of an executive officer or key personnel; changes in our business related to strategic acquisitions and other transactions; our ability to successfully deploy new technology platforms and upgrades; and changes of government policy or regulations. All forward-looking statements speak only as of the date on which they are made and we undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
Our Business
Manning & Napier, Inc. is an independent investment management firm that provides our clients with a broad range of financial solutions and investment strategies. Founded in 1970 and headquartered in Fairport, New York, we serve a diversified client base of high-net-worth individuals and institutions, including 401(k) plans, pension plans, Taft-Hartley plans, endowments and foundations. Our investment strategies offer equity, fixed income and a range of blended asset portfolios by employing traditional and quantitative approaches.
Impact of COVID-19
In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and it continues to spread throughout the United States and other countries. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations, disrupting the global supply chain, creating a reduction in demand for many products, and thus having a significant impact on the global economy. We are addressing the challenges of COVID-19 by protecting the health and well-being of our employees while servicing our clients. The impact of COVID-19 on our investment performance, financial statements, capital and liquidity and our business operations is discussed below:
Client Performance Impact: While absolute returns were negative for the majority of our investment strategies, we believe we delivered downside protection during the market volatility experienced during the first quarter. The vast majority of our AUM outperformed their benchmarks on a relative basis, and in many cases, by substantial margins.
Financial Statement Impact: Our revenues consist primarily of investment management fees typically calculated as a percentage of the market value of our assets under management ("AUM"), and are dependent on the value and composition of our AUM. During the quarter, AUM decreased from approximately $19.5 billion at the start of the year to $17.1 billion as of March 31, largely due to the negative absolute performance across the portfolio. While we expect the effects of the pandemic and the related responses may negatively affect our results of operations, cash flows and financial position, at this time we cannot reasonably estimate the full impact, given the uncertainty over the duration and severity of the economic crisis.
Capital and Liquidity Impact: Our financial condition is stable, allowing us to effectively manage the financial impacts of COVID-19. We believe our capital structure should provide us with sufficient resources and flexibility to meet present and future cash needs. As discussed below in Other Business Updates, we have suspended the quarterly cash dividend on our Class A common stock. Given the uncertainty surrounding the current economic environment, we will continue to assess our liquidity needs.
Business Operations Impact: For the health and well-being of our employees, we have modified our business practices in accordance with social distancing guidelines to encourage work-from-home arrangements and we have restricted business-related travel. Our technology capabilities have allowed us to maintain sales and client servicing activity through digital collaboration platforms and digital marketing efforts. Additionally, our technology has enabled us to

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support the majority of our employees’ remote working arrangements. Our ability to adequately maintain our operations, internal controls and client relationships has not been adversely affected by these modifications.
The extent of the impact of COVID-19 on our business, financial condition and results of operations also depends on future developments, including the duration of the pandemic and the volatility of the global financial markets, all of which are highly uncertain. We continue to assess the risks associated with COVID-19 and to mitigate them where possible. For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company's financial statements, capital and liquidity, and business operations, see "Part II-Item 1A-Risk Factors."
Market Developments
The COVID-19 pandemic sparked a global selloff in the first quarter, with equity markets moving sharply lower and entering their first bear market since the financial crisis. Both domestic and international equities were hit hard, and the downturn was widespread across developed and emerging markets. Within the US, economic uncertainty for small businesses hit smaller cap equities particularly hard. As has been the case over the past several years, growth-oriented equities continued to outperform their value-oriented counterparts.
Regarding fixed income, interest rates fell sharply during the quarter, providing a boost to fixed income performance. Outside of government bonds, credit spreads widened for most sectors of the market on rising investor concern over the sustainability of debt burdens. In credit sensitive areas of the market, such as investment-grade and high yield corporates, gains from lower rates were offset by widening spreads. This includes municipal bonds, whose performance was mixed over the period.
Going forward, we believe now more than ever is the time for an active investment approach. Volatility can be difficult, but it can create tremendous opportunity for long-term investors. Markets are forward looking, and investment opportunities are often found after markets have already turned lower. As always, we encourage investors to employ a disciplined risk management framework that helps to emerge from these challenges stronger on the other side.
Other Business Updates
During the quarter ended March 31, 2020, we declared a first quarter dividend of $0.02 per share of Class A common stock, which was paid on May 1, 2020 to shareholders of record as of April 1, 2020. Following this payment, the Board of Directors decided to suspend the quarterly cash dividend on our Class A common stock. Company management and the Board of Directors will continue to monitor our ability to declare future dividends on a quarter-by-quarter basis.
During the first quarter of 2020, pursuant to the terms of the Exchange Agreement between the Company and the holders of its non-controlling interests, approximately 60.0 million Class A Units of Manning & Napier Group, LLC ("Manning & Napier Group") were tendered for cash or shares of the Company's Class A common stock. In early April 2020, the independent directors, on behalf of the Company, determined that the exchange would be settled in approximately $90.8 million cash. The settlement of the exchange occurred on May 11, 2020, with payment made from our cash, cash equivalents and proceeds from the sale of investment securities. The Class A Units were retired, and as a result, our ownership of Manning & Napier Group increased from 19.5% to 88.2%.
Our Solutions
We derive substantially all of our revenues from investment management fees earned from providing advisory services to separately managed accounts and to mutual funds and collective investment trusts—including those offered by Manning & Napier Advisors, LLC ("MNA"), the Manning & Napier Fund, Inc. (the "Fund"), Exeter Trust Company, and Rainier Investment Management, LLC ("Rainier").
Our separate accounts are primarily distributed through our wealth management sales channel, where our financial consultants form relationships with high-net-worth individuals, endowments, foundations, and retirement plans. To a lesser extent, we also obtain a portion of our separate account distribution via third parties, either through our intermediary sales channel where national brokerage firm representatives or independent financial advisors select our separate account strategies for their clients, or through our platform/sub-advisor relationships, where unaffiliated registered investment advisors approve our strategies for their product platforms. Our separate account strategies are a primary driver of our blended asset portfolios for high-net-worth, middle market institutional clients and financial intermediaries. In contrast, larger institutions and unaffiliated registered investment advisor platforms are a driver of our separate account equity portfolios.
Our mutual funds and collective investment trusts are distributed through financial intermediaries, including brokers, financial advisors, retirement plan advisors and platform relationships. We also distribute our mutual fund and collective investment trusts through our institutional representatives, particularly within the defined contribution, Taft-Hartley, and institutional marketplace. Our mutual fund and collective investment trust strategies are an important driver of our blended asset class and single asset class portfolios.

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Table of Contents


Assets Under Management
During 2019, we changed our distribution strategy following a business review to better capitalize on our strengths. As part of this change, we have adjusted our sales efforts to more distinctly separate the clients to which we deliver holistic solutions, including high-net-worth families, endowments and foundations, and small and mid-sized business, from our Institutional and Intermediary clients, including third party advisors, platforms and consultants, as well as larger institutions and Taft-Hartley clients. Our AUM was $17.1 billion as of March 31, 2020. The composition of our AUM by sales channel and portfolio is illustrated in the table below:
 
 
March 31, 2020
 
 
Blended
Asset
 
Equity
 
Fixed Income
 
Total
 
 
(dollars in millions)
Total AUM
 
 
 
 
 
 
 
 
Wealth Management
 
$
6,508.3

 
$
942.8

 
$
281.8

 
$
7,732.9

Institutional and Intermediary
 
5,588.5

 
3,001.9

 
737.2

 
9,327.6

Total
 
$
12,096.8

 
$
3,944.7

 
$
1,019.0

 
$
17,060.5

Percentage of AUM
 
 
 
 
 
 
 
 
Wealth Management
 
38
%
 
6
%
 
1
%
 
45
%
Institutional and Intermediary
 
33
%
 
18
%
 
4
%
 
55
%
Total
 
71
%
 
24
%
 
5
%
 
100
%
Percentage of portfolio by channel
 
 
 
 
 
 
 
 
Wealth Management
 
54
%
 
24
%
 
28
%
 
45
%
Institutional and Intermediary
 
46
%
 
76
%
 
72
%
 
55
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
Percentage of channel by portfolio
 
 
 
 
 
 
 
 
Wealth Management
 
84
%
 
12
%
 
4
%
 
100
%
Institutional and Intermediary
 
60
%
 
32
%
 
8
%
 
100
%
Our wealth management channel represented 45% of our total AUM as of March 31, 2020. Blended portfolios are the most significant portion of wealth management assets, representing 84% of wealth management AUM. Equity and fixed income portfolios represent 12% and 4%, respectively, of wealth management AUM.
Our institutional and intermediary channel represented 55% of our total AUM as of March 31, 2020. Blended portfolios are also the largest portion of institutional and intermediary assets at 60% of AUM, followed by equity and fixed income portfolios at 32% and 8%, respectively.
As of March 31, 2020, blended portfolios account for 71% of our total AUM at $12.1 billion, a 10% decrease from December 31, 2019 when blended assets were $13.5 billion. Blended portfolio AUM is similar across both distribution channels, with 54% in wealth management and 46% in institutional and intermediary. Equity portfolios account for 24% of our total AUM, at $3.9 billion, a 21% decrease from the fourth quarter when equity portfolios were at $5.0 billion. Of equity portfolio AUM, 76% is in the institutional and intermediary channel, and 24% is in the wealth management channel. Fixed income portfolios account for 5% of total AUM at $1.0 billion, consistent with December 31, 2019. Consistent with equity portfolio AUM, the majority of fixed income assets come through the institutional and intermediary channel at 72%, and 28% fixed income AUM is in the wealth management channel.
During the three months ended March 31, 2020, our wealth management sales channel contributed 30% of our total gross client inflows, while our institutional and intermediary channel contributed 70%. Of the $668.8 million in gross client inflows, blended asset portfolios represented 55%, while equity and fixed income portfolios represented 36% and 9%, respectively.
Results of Operations
Below is a discussion of our consolidated results of operations for the three months ended March 31, 2020 and 2019.

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Components of Results of Operations
Overview
An important factor influencing inflows and outflows of our AUM is the investment performance of our various investment approaches. Our stock selection strategies, absolute pricing discipline and active asset allocation generally result in specific absolute and relative return characteristics in different market environments. For example, during a fundamental-driven bull market when prices are rising alongside improving fundamentals, we are likely to experience positive absolute returns and competitive relative returns. However, in a more momentum-driven bull market, when prices become disconnected from underlying fundamentals, or narrow market environment where a small handful of stocks outperform the average stock, we are likely to experience positive absolute returns but lagging relative returns. Similarly, during a valuation-driven bear market, when markets experience a period of price correction following a momentum-driven bull market, we are likely to experience negative absolute returns but strong relative returns. However, in a momentum-driven bear market, which is typically characterized by broad price declines in a highly correlated market, we are likely to experience negative absolute returns and potentially lagging relative returns. Essentially, our approach is likely to do well when markets are driven by fundamentals, but lag when markets are driven primarily by momentum.
Other components impacting our operating results include:
asset-based fee rates and changes in those rates;
the composition of our AUM among various portfolios, vehicles and client types;
changes in our variable costs, including incentive compensation and distribution, servicing and custody expenses, which are affected by our investment performance, level of our AUM and revenue; and
fixed costs, including changes to base compensation, vendor-related costs and investment spending on new products.
Assets Under Management and Investment Performance
The following table reflects the indicated components of our AUM for our sales channels for the three months ended March 31, 2020 and 2019:
 
Sales Channel (3)
 
Wealth Management
 
Institutional and Intermediary
 
Total
 
Wealth Management
 
Institutional and Intermediary
 
Total
 
 
 
(in millions)
 
 
 
 
 
 
 
 
As of December 31, 2019
$
8,716.4

 
$
10,763.7

 
$
19,480.1

 
45
%
 
55
%
 
100
%
Gross client inflows (1)
202.1

 
466.7

 
668.8

 
 
 
 
 
 
Gross client outflows (1)
(375.3
)
 
(753.9
)
 
(1,129.2
)
 
 
 
 
 
 
Market appreciation/(depreciation) & other (2)
(810.3
)
 
(1,148.9
)
 
(1,959.2
)
 
 
 
 
 
 
As of March 31, 2020
$
7,732.9

 
$
9,327.6

 
$
17,060.5

 
45
%
 
55
%
 
100
%
Average AUM for period
$
8,527.9

 
$
10,163.2

 
$
18,691.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
$
8,700.9

 
$
11,462.7

 
$
20,163.6

 
43
%
 
57
%
 
100
%
Gross client inflows (1)
186.2

 
534.5

 
720.7

 
 
 
 
 
 
Gross client outflows (1)
(464.7
)
 
(1,108.2
)
 
(1,572.9
)
 
 
 
 
 
 
Market appreciation/(depreciation) & other (2)
940.2

 
886.2

 
1,826.4

 
 
 
 
 
 
As of March 31, 2019
$
9,362.6

 
$
11,775.2

 
$
21,137.8

 
44
%
 
56
%
 
100
%
Average AUM for period
$
9,125.7

 
$
11,542.0

 
$
20,667.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Transfers of client assets between portfolios are included in gross client inflows and gross client outflows.
(2)
Market appreciation/(depreciation) and other includes investment gains/(losses) on assets under management, the impact of changes in foreign exchange rates and net flows from non-sales related activities including net reinvested dividends..

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(3)
AUM and gross client flows between sales channels have been estimated based upon preliminary data. For a limited portion of our mutual fund AUM, reporting by sales channel is not available at the time of this report. Such estimates have no impact on total AUM, total cash flows, or AUM by investment portfolio reported in the table above.

The following table reflects the indicated components of our AUM for our portfolios for the three months ended March 31, 2020 and 2019:

 
Blended
Asset
 
Equity
 
Fixed
Income
 
Total
 
Blended
Asset
 
Equity
 
Fixed
Income
 
Total
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
As of December 31, 2019
$
13,473.3

 
$
4,988.8

 
$
1,018.0

 
$
19,480.1

 
69
%
 
26
%
 
5
%
 
100
%
Gross client inflows (1)
368.2

 
237.2

 
63.4

 
668.8

 
 
 
 
 
 
 
 
Gross client outflows (1)
(816.4
)
 
(231.7
)
 
(81.1
)
 
(1,129.2
)
 
 
 
 
 
 
 
 
Market appreciation/(depreciation) & other (2)
(928.3
)
 
(1,049.6
)
 
18.7

 
(1,959.2
)
 
 
 
 
 
 
 
 
As of March 31, 2020
$
12,096.8

 
$
3,944.7

 
$
1,019.0

 
$
17,060.5

 
71
%
 
24
%
 
5
%
 
100
%
Average AUM for period
$
13,025.7

 
$
4,640.4

 
$
1,025.0

 
$
18,691.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
$
13,532.2

 
$
5,501.9

 
$
1,129.5

 
$
20,163.6

 
67
%
 
27
%
 
6
%
 
100
%
Gross client inflows (1)
302.1

 
379.3

 
39.3

 
720.7

 
 
 
 
 
 
 
 
Gross client outflows (1)
(1,065.9
)
 
(382.7
)
 
(124.3
)
 
(1,572.9
)
 
 
 
 
 
 
 
 
Market appreciation/(depreciation) & other (2)
1,066.3

 
728.7

 
31.4

 
1,826.4

 
 
 
 
 
 
 
 
As of March 31, 2019
$
13,834.7

 
$
6,227.2

 
$
1,075.9

 
$
21,137.8

 
66
%
 
29
%
 
5
%
 
100
%
Average AUM for period
$
13,634.7

 
$
5,927.8

 
$
1,105.2

 
$
20,667.7