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What changed in DIAMOND HILL INVESTMENT GROUP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of DIAMOND HILL INVESTMENT GROUP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+258 added−244 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-23)

Top changes in DIAMOND HILL INVESTMENT GROUP INC's 2023 10-K

258 paragraphs added · 244 removed · 203 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

44 edited+4 added−7 removed17 unchanged
Biggest changeBelow is a summary of AUM by distribution channel for each of the five years ended December 31, 2022: AUM by Distribution Channel As of December 31, (in millions) 2022 2021 2020 2019 2018 Diamond Hill Funds: Registered investment adviser $ 3,787 $ 4,633 $ 4,315 $ 3,603 $ 3,243 Independent broker-dealer 4,135 5,304 4,274 3,563 2,900 Wirehouse 2,843 4,195 3,529 3,026 2,319 Bank trust 1,718 2,256 2,546 2,907 2,672 Defined contribution 2,085 3,249 2,716 2,723 1,904 Other 177 149 235 326 402 Total Diamond Hill Funds 14,745 19,786 17,615 16,148 13,440 Separately managed accounts: Institutional consultant 2,432 2,960 2,504 2,397 2,122 Financial intermediary 3,067 3,594 2,371 1,777 1,506 Direct 721 678 736 1,048 682 Total separately managed accounts 6,220 7,232 5,611 5,222 4,310 Collective investment trusts 1,040 603 318 30 1 Other pooled vehicles 2,758 3,407 2,867 1,999 1,357 Total AUM 24,763 31,028 26,411 23,399 19,108 Total AUA 1,802 2,098 1,099 933 476 Total AUM and AUA $ 26,565 $ 33,126 $ 27,510 $ 24,332 $ 19,584 Fund Administration Activities DHCM provides fund administration services to the Funds.
Biggest changeThe following table is a summary of AUM by distribution channel for each of the five years ended December 31, 2023: AUM and AUA by Distribution Channel As of December 31, (in millions) 2023 2022 2021 2020 2019 Diamond Hill Funds: Registered investment adviser $ 4,329 $ 3,787 $ 4,633 $ 4,315 $ 3,603 Independent broker-dealer 4,597 4,135 5,304 4,274 3,563 Wirehouse 2,902 2,843 4,195 3,529 3,026 Bank trust 1,777 1,718 2,256 2,546 2,907 Defined contribution 2,090 2,085 3,249 2,716 2,723 Other 184 177 149 235 326 Total Diamond Hill Funds 15,879 14,745 19,786 17,615 16,148 Separately managed accounts: Institutional consultant 2,782 2,432 2,960 2,504 2,397 Financial intermediary 2,986 3,067 3,594 2,371 1,777 Direct 849 721 678 736 1,048 Total separately managed accounts 6,617 6,220 7,232 5,611 5,222 Collective investment trusts 1,359 1,040 603 318 30 Other pooled vehicles 3,563 2,758 3,407 2,867 1,999 Total AUM 27,418 24,763 31,028 26,411 23,399 Total AUA (a) 1,746 1,802 2,098 1,099 933 Total AUM and AUA $ 29,164 $ 26,565 $ 33,126 $ 27,510 $ 24,332 (a) 100% of AUA is from financial intermediaries.
DHCM is a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and is the investment adviser and administrator for the Diamond Hill Funds (each a “Fund,” and collectively, the “Funds”), a series of open-end mutual funds.
DHCM is a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and is the investment adviser and administrator for the Diamond Hill Funds, a series of open-end mutual funds (each a “Fund,” and collectively, the “Funds”).
The Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary duties, recordkeeping requirements, operational requirements, and disclosure obligations. All of the Funds are registered with the SEC under the Investment Company Act of 1940, as amended (the “1940 Act”), and are required to make notice filings with all states where the Funds are offered for sale.
The Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary duties, recordkeeping requirements, operational requirements, and disclosure obligations. All of the Funds are registered with the SEC under the Investment Company Act of 1940, as amended (“1940 Act”), and are required to make notice filings with all states where the Funds are offered for sale.
However, there is no assurance that the Funds will choose to continue their relationships with DHCM. Please see Item 1A for risk factors regarding this relationship. Human Capital The Company believes its people are its greatest asset, and each role within the firm contributes to our goals of generating excellent, long-term investment outcomes and building enduring client partnerships.
However, there is no assurance that the Funds will choose to continue their relationships with DHCM. Please see Item 1A for risk factors regarding this relationship. Human Capital The Company believes its people are its greatest asset, and each role within the firm contributes to its goals of generating excellent, long-term investment outcomes and building enduring client partnerships.
The words “may,” “believe,” “expect,” “anticipate,” “target,” “goal,” “project,” “estimate,” “guidance,” “forecast,” “outlook,” “would,” “will,” “continue,” “should,” “hope,” “seek,” “plan,” “intend,” and variations of such words and similar expressions identify such forward-looking statements. Similarly, descriptions of the Company’s objectives, strategies, plans, goals, or targets are also forward-looking statements.
The words “may,” “believe,” “expect,” “anticipate,” “target,” “goal,” “project,” “estimate,” “guidance,” “forecast,” “outlook,” “would,” “will,” “continue,” “likely,” “should,” “hope,” “seek,” “plan,” “intend,” and variations of such words and similar expressions identify such forward-looking statements. Similarly, descriptions of the Company’s objectives, strategies, plans, goals, or targets are also forward-looking statements.
While the Company believes that the assumptions underlying its forward-looking statements are reasonable, investors are cautioned that any of the assumptions could prove to be inaccurate and, accordingly, the Company's actual results and experiences could differ materially from the anticipated results or other expectations expressed in its forward-looking statements.
While the Company believes that the assumptions underlying its forward-looking statements are reasonable, investors are cautioned that any of the assumptions could prove to be inaccurate and, accordingly, the Company's actual results and experiences may differ materially from the anticipated results or other expectations expressed in its forward-looking statements.
DHCM also provides investment advisory and related services to the Diamond Hill Micro Cap Fund, LP (“DHMF”), a private fund, as well as, separately managed accounts, collective investment trusts, model delivery programs and other pooled vehicles, including sub-advised funds.
DHCM also provides investment advisory and related services to the Diamond Hill Micro Cap Fund, LP (“DHMF”), a private fund, as well as, separately managed accounts, collective investment trusts (“CITs”), other pooled vehicles including sub-advised funds, and model delivery programs.
ERISA and applicable provisions of the Internal Revenue Code of 1986, as amended, impose certain duties on persons who are fiduciaries, prohibit certain transactions involving ERISA plan clients, and provide monetary penalties for violations of these prohibitions. The U.S. Department of Labor, which administers ERISA, has been increasingly active in proposing and adopting regulations affecting the asset management industry.
ERISA and applicable provisions of the Internal Revenue Code of 1986, as amended, impose certain duties on persons who are fiduciaries, prohibit certain transactions involving ERISA plan clients, and provide monetary penalties for violations of these prohibitions. The Department of Labor, which administers ERISA, has been increasingly active in proposing and adopting regulations affecting the asset management industry.
Workforce Data Attracting, developing, and retaining talented employees is integral to the Company’s human capital strategy and critical to its success. The Company depends on highly skilled personnel, with specialized expertise and extensive experience in the investment management industry. As of December 31, 2022, the Company employed 129 full-time equivalent employees.
Workforce Data Attracting, developing, and retaining talented employees is integral to the Company’s human capital strategy and critical to its success. The Company depends on highly skilled personnel, with specialized expertise and extensive experience in the investment management industry. As of December 31, 2023 and December 31, 2022, the Company employed 129 full-time employees.
Readers are advised, however, to consult any further disclosures the Company makes on related subjects in its public announcements and SEC filings.
Readers are advised to consult any further disclosures the Company makes on related subjects in its public announcements and SEC filings.
Possible sanctions that regulatory bodies may impose include civil and criminal liability, the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser, broker-dealer, and other registrations, censures, and fines. 7 Table of Contents DHCM is registered with the SEC under the Advisers Act and operates in a highly regulated environment.
Possible sanctions that regulatory bodies may impose include civil and criminal liability, the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser, broker-dealer, and other registrations, censures, and fines. DHCM is registered with the SEC under the Advisers Act and operates in a highly regulated environment.
Fund administration services are broadly defined to include the following services: portfolio and regulatory compliance; treasury and financial oversight; oversight of back-office service providers, such as the custodian, fund accountant, and transfer agent; and general business management and governance of the Funds.
Fund Administration Activities DHCM provides fund administration services to the Funds. Fund administration services are broadly defined to include the following services: portfolio and regulatory compliance; treasury and financial oversight; oversight of back-office service providers, such as the custodian, fund accountant, and transfer agent; and general business management and governance of the Funds.
DHCM generated approximately 71%, 69%, and 75% of its 2022, 2021, and 2020 revenues, respectively, from its advisory and administration agreements with the Funds. DHCM believes that it has strong relationships with the Funds and their board of trustees, and DHCM has no reason to believe that these advisory or administration contracts will not be renewed in the future.
DHCM generated approximately 68%, 71%, and 69% of its 2023, 2022, and 2021 revenues, respectively, from its advisory and administration agreements with the Funds. DHCM believes that it has strong relationships with the Funds and their board of trustees, and DHCM has no reason to believe that these advisory or administration contracts will not be renewed in the future.
These asset allocators include centralized research teams at institutional consulting firms, wirehouses, banks, independent broker dealers (IBD) and independent registered investment advisory firms (RIAs).
These asset allocators include centralized research teams at institutional consulting firms, wirehouses, banks, independent broker dealers, and independent registered investment advisory firms.
Factors that could cause such actual results or experiences to differ materially from results discussed in the forward-looking statements include, but are not limited to: (i) any reduction in the Company's assets under management (“AUM”); (ii) withdrawal, renegotiation, or termination of investment advisory agreements; (iii) damage to the Company's reputation; (iv) failure to comply with investment guidelines or other contractual requirements; (v) challenges from the competition the Company faces in its business; (vi) adverse regulatory and legal developments; (vii) unfavorable changes in tax laws or limitations; (viii) interruptions in or failure to provide critical technological service by the Company or third parties; (ix) adverse civil litigation and government investigations or proceedings; (x) risk of loss on the Company's investments; (xi) lack of sufficient capital on satisfactory terms; (xii) losses or costs not covered by insurance; (xiii) a decline in the performance of the Company's products; (xiv) changes in interest rates and inflation; (xv) changes in national and local economic and political conditions; (xvi) the continuing economic uncertainty in various parts of the world; (xvii) the after-effects of the COVID-19 pandemic and the actions taken in connection therewith; (xviii) political uncertainty caused by, among other things, political parties, economic nationalist sentiments, tensions surrounding the current socioeconomic landscape, and other risks identified from time-to-time in other public documents on file with the U.
Factors that may cause such actual results or experiences to differ materially from results discussed in the forward-looking statements include, but are not limited to: (i) any reduction in the Company's assets under management (“AUM”) or assets under advisement (“AUA”); (ii) withdrawal, renegotiation, or termination of investment advisory agreements; (iii) damage to the Company's reputation; (iv) failure to comply with investment guidelines or other contractual requirements; (v) challenges from the competition the Company faces in its business; (vi) challenges from industry trends towards lower fee strategies and model portfolio arrangements; (vii) adverse regulatory and legal developments; (viii) unfavorable changes in tax laws or limitations; (ix) interruptions in or failure to provide critical technological service by the Company or third parties; (x) adverse civil litigation and government investigations or proceedings; (xi) failure to adapt to or successfully incorporate technological changes, such as artificial intelligence, into the Company’s business; (xii) risk of loss on the Company's investments; (xiii) lack of sufficient capital on satisfactory terms; (xiv) losses or costs not covered by insurance; (xv) a decline in the performance of the Company's products; (xvi) changes in interest rates and inflation; (xvii) changes in national and local economic and political conditions; (xix) the continuing economic uncertainty in various parts of the world; (xviii) the after-effects of the COVID-19 pandemic and the actions taken in connection therewith; (xx) political uncertainty caused by, among other things, political parties, economic nationalist sentiments, tensions surrounding the current socioeconomic landscape; and (xix), other risks identified from time-to-time in our public documents on file with the U.S.
The Company focuses its efforts primarily on asset allocators with centralized research teams, allowing efficient delivery of services to a larger and more diverse client base. These tend to be highly sophisticated buyers, conducting deep research and pairing the Company’s strategies with complementary strategies to meet holistic client objectives.
The Company focuses its efforts primarily on asset allocators with centralized research teams, allowing efficient delivery of services to a larger and more diverse client base. These highly sophisticated buyers conduct deep research and pair the Company’s strategies with complementary strategies to meet holistic client objectives.
The Company’s employees are based in 12 states although approximately 78% of its employees reside in Ohio. Competitive Pay and Benefits The Company’s competitive compensation and benefits are designed to help attract, retain, and motivate employees who embody its values. The Company aligns its employees’ compensation with client outcomes, individual and team results, and company performance.
The Company’s employees are based in 12 states, and approximately 80% of its employees reside in Ohio. 8 Table of Contents Competitive Pay and Benefits The Company’s competitive compensation and benefits are designed to help attract, retain, and motivate employees who embody its values. The Company aligns its employees’ compensation with client outcomes, individual and team results, and company performance.
DHCM’s trading activities for client accounts are regulated by the SEC under the Exchange Act, which includes regulations governing trading on inside information, market manipulation, and a broad number of trading and market regulation requirements in the United States ( e.g. , volume limitations and reporting obligations).
DHCM’s trading activities for client accounts are regulated by the SEC under the Exchange Act, which includes regulations governing trading on inside information, market manipulation, and a broad number of trading and market regulation requirements in the United States.
(d) AUA is primarily comprised of Large Cap and All Cap Select strategies. 5 Table of Contents Change in Assets Under Management For the Year Ended December 31, (in millions) 2022 2021 2020 2019 2018 AUM at beginning of the year $ 31,028 $ 26,411 $ 23,399 $ 19,108 $ 22,317 Net cash inflows (outflows) Diamond Hill Funds (2,433) 1,994 879 (499) (978) Separately managed accounts (73) 168 (63) (394) (99) Collective investment trusts 486 182 236 26 — Other pooled vehicles (221) (221) 477 190 (25) (2,241) 2,123 1,529 (677) (1,102) Sale of High Yield-Focused Advisory Contracts — (3,456) — — — Net market appreciation/(depreciation) and income (4,024) 5,950 1,483 4,968 (2,107) Increase (decrease) during the year (6,265) 4,617 3,012 4,291 (3,209) AUM at end of the year 24,763 31,028 26,411 23,399 19,108 AUA at end of year 1,802 2,098 1,099 933 476 Total AUM and AUA at end of year $ 26,565 $ 33,126 $ 27,510 $ 24,332 $ 19,584 Capacity The Company’s ability to retain and grow its AUM has been, and will continue to be, primarily driven by delivering attractive long-term investment results, which requires strict adherence to capacity discipline.
(d) AUA is primarily comprised of model portfolio assets related to the Large Cap and Select strategies. 5 Table of Contents Change in Assets Under Management For the Year Ended December 31, (in millions) 2023 2022 2021 2020 2019 AUM at beginning of the year $ 24,763 $ 31,028 $ 26,411 $ 23,399 $ 19,108 Net cash inflows (outflows) Diamond Hill Funds (599) (2,433) 1,994 879 (499) Separately managed accounts (416) (73) 168 (63) (394) Collective investment trusts 153 486 182 236 26 Other pooled vehicles 368 (221) (221) 477 190 (494) (2,241) 2,123 1,529 (677) Sale of High Yield-Focused Advisory Contracts — — (3,456) — — Net market appreciation/(depreciation) and income 3,149 (4,024) 5,950 1,483 4,968 Increase (decrease) during the year 2,655 (6,265) 4,617 3,012 4,291 AUM at end of the year 27,418 24,763 31,028 26,411 23,399 AUA at end of year 1,746 1,802 2,098 1,099 933 Total AUM and AUA at end of year $ 29,164 $ 26,565 $ 33,126 $ 27,510 $ 24,332 Capacity The Company’s ability to retain and grow its AUM has been, and will continue to be, primarily driven by delivering attractive long-term investment results, which requires adherence to capacity discipline.
Forward-looking statements include, but are not limited to, statements regarding anticipated operating results, prospects and levels of assets under management, technological developments, economic trends (including interest rates and market volatility), expected transactions and similar matters.
Such statements are provided under the “safe harbor” protection of the PSLR Act. Forward-looking statements include, but are not limited to, statements regarding anticipated operating results, prospects and levels of assets under management, technological developments, economic trends (including interest rates and market volatility), expected transactions and similar matters.
Equity 20,835 26,748 19,906 17,479 14,030 Alternatives Long-Short 1,752 1,998 2,056 3,605 3,767 Total Alternatives 1,752 1,998 2,056 3,605 3,767 Global/International Equity International 52 56 17 13 3 Global (a) — — 16 22 15 Total Global/International Equity 52 56 33 35 18 Fixed Income Short Duration Securitized Bond 1,308 1,613 1,132 809 579 Core Fixed Income 792 622 541 300 55 Long Duration Treasury 33 51 62 52 52 Corporate Credit (b) — — 2,020 1,147 757 High Yield (b) — — 724 135 54 Total Fixed Income 2,133 2,286 4,479 2,443 1,497 Total-All Strategies 24,772 31,088 26,474 23,562 19,312 (Less: Investments in affiliated funds) (c) (9) (60) (63) (163) (204) Total AUM 24,763 31,028 26,411 23,399 19,108 Total AUA (d) 1,802 2,098 1,099 933 476 Total AUM and AUA $ 26,565 $ 33,126 $ 27,510 $ 24,332 $ 19,584 (a) The Diamond Hill Global Fund was liquidated on December 17, 2021.
Equity 21,885 20,835 26,748 19,906 17,479 Alternatives Long-Short 1,725 1,752 1,998 2,056 3,605 Total Alternatives 1,725 1,752 1,998 2,056 3,605 Global/International Equity International 109 52 56 17 13 Global (a) — — — 16 22 Total Global/International Equity 109 52 56 33 35 Fixed Income Short Duration Securitized Bond 1,948 1,308 1,613 1,132 809 Core Fixed Income 1,735 792 622 541 300 Long Duration Treasury 26 33 51 62 52 Corporate Credit (b) — — — 2,020 1,147 High Yield (b) — — — 724 135 Total Fixed Income 3,709 2,133 2,286 4,479 2,443 Total-All Strategies 27,428 24,772 31,088 26,474 23,562 (Less: Investments in affiliated funds) (c) (10) (9) (60) (63) (163) Total AUM 27,418 24,763 31,028 26,411 23,399 Total AUA (d) 1,746 1,802 2,098 1,099 933 Total AUM and AUA $ 29,164 $ 26,565 $ 33,126 $ 27,510 $ 24,332 (a) The Diamond Hill Global Fund was liquidated on December 17, 2021.
The Company assumes no obligation to update any forward-looking statements after the date of this Form 10-K as a result of new information, future events or developments, except as required by federal securities laws, although it may do so from time to time. The Company undertakes no obligation to publicly update forward-looking statements.
The Company undertakes no obligation to update any forward-looking statements after the date they are made, whether as a result of new information, future events or developments, except as required by federal securities laws, although it may do so from time to time.
In order to ensure efficient business development and relationship management, the Company has dedicated resources toward content-led marketing and sales enablement efforts. The Company believes that the combination of these efforts will lead to a deeper understanding of its investment strategies, and ultimately, longer holding periods for investors.
The Company looks to attract like-minded, long-term focused clients across all of its offerings. To ensure efficient business development and relationship management, the Company has dedicated resources toward content-led marketing and sales enablement efforts. The Company believes that the combination of these efforts will lead to a deeper understanding of its investment strategies, and ultimately, longer holding periods for investors.
Our employees invest alongside our clients, and portfolio managers have significant personal investments in the strategy or strategies they manage. Diversity, Equity, and Inclusion The Company views diversity, equity, and inclusion (“DEI”) as essential parts of its business and operating model.
All members of the investment team believe in, and adhere to, the same investment principles. The Company’s employees invest alongside its clients, and portfolio managers have significant personal investments in the strategy or strategies they manage. Diversity, Equity, and Inclusion The Company views diversity, equity, and inclusion (“DEI”) as essential parts of its business and operating model.
Business Cautionary Note Regarding Forward-Looking Statements This Annual Report on Form 10-K (this “Form 10-K”), the documents incorporated herein by reference and statements, whether oral or written, made from time to time by representatives of Diamond Hill Investment Group, Inc., an Ohio corporation organized in 1990 (“DHIL”), and its subsidiaries (collectively, the “Company,” “we,” “our,” and “us”) may contain or incorporate “forward-looking statements” within the meaning of the U.S.
Business Cautionary Note Regarding Forward-Looking Statements This Annual Report on Form 10-K (this “Form 10-K”), the documents incorporated herein by reference and statements, whether oral or written, made from time to time by representatives of Diamond Hill Investment Group, Inc., an Ohio corporation organized in 1990 (“DHIL”, and collectively with its subsidiaries, the “Company,” “we,” “our,” and “us”), may contain or incorporate “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended (the “PSLR Act”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Equity Large Cap $ 16,478 $ 21,285 $ 15,075 $ 12,316 $ 9,611 Small-Mid Cap 2,646 3,183 2,810 3,243 2,770 Mid Cap 899 1,165 992 569 143 All Cap Select 392 438 446 528 432 Small Cap 306 597 556 795 1,048 Large Cap Concentrated 99 64 27 28 26 Micro Cap 15 16 — — — Total U.S.
Equity Large Cap $ 17,307 $ 16,478 $ 21,285 $ 15,075 $ 12,316 Small-Mid Cap 2,588 2,646 3,183 2,810 3,243 Mid Cap 1,023 899 1,165 992 569 Select 593 392 438 446 528 Small Cap 255 306 597 556 795 Large Cap Concentrated 98 99 64 27 28 Micro Cap 21 15 16 — — Total U.S.
Today, the Company’s existing capacity is estimated to be $40 billion to $50 billion in domestic equities, $15 billion to $20 billion in international equities, and $50 billion to $65 billion in fixed income. The Company’s firm level capacity increases with the development of new products or strategies.
The Company’s capacity as of December 31, 2023 was estimated to be $40 billion to $50 billion in domestic equities, $20 billion to $30 billion in international equities, and $50 billion to $65 billion in fixed income. The Company’s firm-level capacity increases with the development of new products or strategies.
The following tables show AUM by product and investment objective, as well as net client cash flows, and AUA for each of the past five years ended December 31, 2022: Assets Under Management and Assets Under Advisement As of December 31, (in millions) 2022 2021 2020 2019 2018 Diamond Hill Funds $ 14,745 $ 19,786 $ 17,615 $ 16,148 $ 13,440 Separately managed accounts 6,220 7,232 5,611 5,222 4,310 Collective investment trusts 1,040 603 318 30 1 Other pooled vehicles 2,758 3,407 2,867 1,999 1,357 Total AUM 24,763 31,028 26,411 23,399 19,108 Total AUA 1,802 2,098 1,099 933 476 Total AUM and AUA $ 26,565 $ 33,126 $ 27,510 $ 24,332 $ 19,584 4 Table of Contents Assets Under Management by Investment Strategy As of December 31, (in millions) 2022 2021 2020 2019 2018 U.S.
The following is a summary of the Company’s AUM by product and investment strategy, a roll-forward of the change in AUM, and a summary of AUA for each of the past five years ended December 31, 2023: Assets Under Management and Assets Under Advisement As of December 31, (in millions) 2023 2022 2021 2020 2019 Diamond Hill Funds $ 15,879 $ 14,745 $ 19,786 $ 17,615 $ 16,148 Separately managed accounts 6,617 6,220 7,232 5,611 5,222 Collective investment trusts 1,359 1,040 603 318 30 Other pooled vehicles 3,563 2,758 3,407 2,867 1,999 Total AUM 27,418 24,763 31,028 26,411 23,399 Total AUA 1,746 1,802 2,098 1,099 933 Total AUM and AUA $ 29,164 $ 26,565 $ 33,126 $ 27,510 $ 24,332 4 Table of Contents Assets Under Management by Investment Strategy As of December 31, (in millions) 2023 2022 2021 2020 2019 U.S.
DEI is a continuous journey, and the Company recognizes that transparency and accountability are critical to driving real change within the firm, in the industry, and within its community.
DEI is a continuous journey, and the Company recognizes that transparency and accountability are critical to driving real change within the firm, in the industry, and within its community. Learn more about the Company’s DEI philosophy, commitments and annual progress on the Company’s website.
Regulation DHCM’s firm and business are subject to various federal, state, and non-U.S. laws and regulations. As a matter of public policy, regulatory bodies are charged with safeguarding the integrity of the securities and other financial markets, and with protecting the interests of participants in those markets, including investment advisory clients and shareholders of investment funds.
As a matter of public policy, regulatory bodies are charged with safeguarding the integrity of the securities and other financial markets, and with protecting the interests of participants in those markets, including investment advisory clients and shareholders of investment funds.
The Company’s DEI initiatives are driven by employees on cross-functional teams who are enthusiastic about leading sustainable efforts under four areas of focus: Workforce Diversity, Inclusive Culture, Vendor & Policy, and Philanthropy & Community.
The Company’s DEI initiatives are driven by employees across functional teams who are enthusiastic about leading sustainable efforts under four areas of focus: workforce diversity, inclusive culture, vendor and policy, and philanthropy and community. SEC Filings The Company maintains a website at www.diamond-hill.com .
Competition Competition in the investment management industry is intense, and DHCM’s competitors include investment management firms, broker-dealers, banks, and insurance companies, some of whom offer various investment alternatives, including passive index strategies. Many of DHCM’s competitors are better known, offer a broader range of investment products, and have more dedicated resources for business development and marketing.
Competition Competition in the investment management industry is intense, and DHCM’s competitors include investment management firms, broker-dealers, banks, and insurance companies, some of whom offer various investment alternatives, including passive index strategies.
S. Securities and Exchange Commission (“SEC”), including those discussed below in Item 1A. All future written and oral forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above.
Securities and Exchange Commission (“SEC”), including those discussed in Item 1A of this Form 10-K. Forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above, in Item 1A of this Form 10-K, and in our other public documents on file with the SEC.
As of December 31, 2022, females represented 42% of DHIL’s Board of Directors (the “Board”), 66% of the Company’s management team, and approximately 33% of its employees. As of December 31, 2022, racial or ethnic minorities represented approximately 15% of the Company’s workforce.
As of December 31, 2023, females represented 50% of DHIL’s board of directors (“Board”), 66% of the Company’s management team, and approximately 32% of its employees. As of December 31, 2023, racial or ethnic minorities represented approximately 14% of the Company’s workforce and 17% of the Board. Please see additional demographic details on the Company’s website.
DHCM does not have discretionary investment authority over individual client accounts in the model delivery programs, and therefore, the AUA are not included in the Company’s AUM.
DHCM is paid for its services by the program sponsors at a pre-determined rate based on AUA in the model delivery programs. DHCM does not have discretionary investment authority over individual client accounts in the model delivery programs, and therefore, the AUA is not included in the Company’s AUM.
The Company’s client alignment philosophy guides it to develop strategies and offer vehicles that meet clients’ objectives, capitalize on its investment team’s research capabilities, and align with its investment principles. The Company looks to attract like-minded, long-term focused clients across all of its offerings.
Growth Strategy The Company’s growth centers first and foremost on delivering an investment and client experience that enables investors to experience better outcomes over the long-term. The Company’s client alignment philosophy guides it to develop strategies and offer vehicles that meet clients’ objectives, capitalize on its investment team’s research capabilities, and align with its investment principles.
As of December 31, 2021, the Company’s number of full-time equivalent employees was 128. The Company’s average employee tenure is approximately 7.5 years, and nearly 25% of its employees have more than 10 years of service. The Company’s five-year average employee turnover rate is approximately 8.3%.
The average employee tenure is approximately eight years, and nearly one-third of its employees have been with the Company more than 10 years. The Company’s five-year average employee turnover rate is approximately 7%.
Employees who are motivated by giving and receiving respect communicate and provide feedback candidly, transparently, and with positive intent. They are humble in their assumptions and listen to better understand others. They embrace, value, and celebrate diversity, inclusion, and differences in all forms. The Company’s culture revolves around the fact that Diamond Hill is a fiduciary first and foremost.
Employees who embrace trust act with integrity, are authentic and honest in interactions with others, and put client interests ahead of all others. Employees who are motivated by giving and receiving respect communicate and provide feedback candidly, transparently, and with positive intent. They are humble in their assumptions and listen to better understand others.
The Company’s core cultural values of curiosity, ownership, trust, and respect create an environment where investment professionals focus on investment results and all teammates focus on the overall client experience. The Company offers a variety of investment strategies designed for long-term strategic allocations from institutionally-oriented investors in key asset classes, aligning its investment team’s competitive advantages with its clients’ needs.
The Company’s core cultural values of curiosity, ownership, trust, and respect create an environment where investment professionals focus on investment results and all teammates focus on the overall client experience.
Assets Under Management DHCM’s principal source of revenue is investment advisory fee income earned from managing client accounts under investment advisory and sub-advisory agreements. The fees earned depend on the type of investment strategy, account size, and servicing requirements. DHCM’s revenues depend largely on the total value and composition of its AUM.
The fees earned depend on the type of investment strategy, account size, and servicing requirements. DHCM’s revenues depend largely on the total value and composition of its AUM. Accordingly, net cash flows from clients, market fluctuations, and the composition of AUM impact the Company’s revenues and results of operations.
The primary focus is serving its clients and the Company believes this client-centric approach is difficult for competitors to replicate. The Company’s long-term, valuation-disciplined investment principles are foundational to its culture and have been consistently implemented since the firm’s inception. All members of the investment team believe in, and adhere to, the same investment principles.
They embrace, value, and celebrate diversity, inclusion, and differences in all forms. The Company’s culture revolves around the fact that DHCM is a fiduciary first and foremost. The primary focus is serving its clients. The Company’s long-term, valuation-disciplined investment principles are foundational to its culture and have been consistently implemented since the firm’s inception.
Accordingly, net cash flows from clients, market fluctuations, and the composition of AUM impact the Company's revenues and results of operations. The Company also has certain agreements that allow it to earn performance-based fees if investment returns exceed targeted amounts over a specified measurement period.
DHCM also has certain agreements that allow it to earn performance-based fees if investment returns exceed targeted amounts over a specified measurement period. Model Delivery Programs - Assets Under Advisement DHCM provides strategy-specific model portfolios to sponsors of model delivery programs.
The culture allows the Company to attract and retain employees who share its commitment to client alignment, are motivated by investment excellence, and are committed to delivering superior outcomes. 8 Table of Contents Employees who are curious focus on continuous self-improvement and have a passion for learning. They are open-minded, seek differing perspectives, and go beyond surface-level assumptions.
Employees who are curious focus on continuous self-improvement and have a passion for learning. They are open-minded, seek differing perspectives, and go beyond surface-level assumptions. Employees who think and act like business owners naturally embrace a long-term mindset. They lead by example and accept accountability for ensuring strong client outcomes.
The Company intentionally designs its benefits to provide support to teammates and their families, which enables its teammates to focus on client outcomes. Culture The Company’s culture emphasizes four key values: curiosity, ownership, trust and respect. The way its employees embody the core values creates an exceptional corporate culture.
Culture The Company’s culture emphasizes four key values: curiosity, ownership, trust and respect. The way its employees embody these core values creates the Company’s culture. The culture allows the Company to attract and retain employees who share its commitment to client alignment, are motivated by investment excellence, and are committed to delivering excellent outcomes.
Removed
Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements are provided under the “safe harbor” protection of the Private Securities Litigation Reform Act of 1995.
Added
The Company offers a variety of investment strategies designed for long-term strategic allocations from institutionally oriented investors in key asset classes, aligning its investment team’s competitive advantages with its clients’ needs. Assets Under Management DHCM’s principal source of revenue is investment advisory fee income earned from managing client accounts under investment advisory and sub-advisory agreements.
Removed
Model Delivery Programs - Assets Under Advisement DHCM provides strategy-specific model portfolios to sponsors of model delivery programs. DHCM is paid for its services by the program sponsors at a pre-determined rate based on assets under advisement (“AUA”) in the model delivery programs.
Added
The Company’s revenues are highly dependent on both the value and composition of AUM and AUA.
Removed
As of December 31, 2022, the Company’s Large Cap and Small-Mid Cap strategies were closed to most new investors. The Company plans to reopen its Large Cap strategy on February 28, 2023.
Added
Many of DHCM’s competitors are better known, offer a broader range of investment products, and have more dedicated resources for business development and marketing. 7 Table of Contents Regulation The Company is subject to various federal, state, and non-U.S. laws and regulations.
Removed
Growth Strategy As a deliberately capacity-constrained organization, the Company’s growth centers first and foremost on delivering an investment and client experience that enables investors to experience better outcomes over the long-term.
Added
The information on our website, including our DEI annual reports, is not incorporated by reference in or otherwise considered a part of this Form 10-K or any other report or document we file with, or furnish to, the SEC.
Removed
Employees who think and act like business owners naturally embrace a long-term mindset. They lead by example and accept accountability for ensuring excellent client outcomes. Employees who embrace trust act with integrity, are authentic and honest in interactions with others, and put client interests ahead of all others.
Removed
Highlights of the Company’s 2022 DEI initiatives include: • The Company has distributed and/or committed more than half of its $1M in pledged funds to partners and organizations that align with its DEI efforts. • The Company became a signatory to the DEI Code for the Investment Profession in the United States and Canada launched in 2022 in conjunction with the CFA Institute. • The Company website now features a dedicated DEI section including its DEI philosophy, commitments and inaugural annual progress report.
Removed
SEC Filings The Company maintains a website at www.diamond-hill.com .

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

37 edited+11 added−1 removed37 unchanged
Biggest changeIn addition, the Company shares information with third parties upon whom it relies for various functions. The systems of such third parties also are vulnerable to cyber threats. Unauthorized access can come from unrelated third parties through the internet, from access to hardware removed from the Company's premises or those of third parties or from employees acting intentionally or inadvertently.
Biggest changeNevertheless, the Company’s systems, like all technology systems, remain vulnerable to unauthorized access, which can result in theft or corruption of information. In addition, the Company shares information with third party vendors upon whom it relies for various functions. The systems of such third parties also are vulnerable to cyber threats.
The Company’s investment products compete against investment products and services from: • Asset management firms; • Mutual fund companies; • Commercial banks and thrift institutions; • Insurance companies; • Exchange-traded funds; 10 Table of Contents • Private funds, including hedge funds and private equity funds; and • Brokerage and investment banking firms.
The Company’s investment products compete against investment products and services from: • Asset management firms; 10 Table of Contents • Mutual fund companies; • Commercial banks and thrift institutions; • Insurance companies; • Exchange-traded funds; • Private funds, including hedge funds and private equity funds; and • Brokerage and investment banking firms.
The Funds’ agreements are subject to annual approval by either: (i) the board of trustees of the Funds, or (ii) a vote of the majority of the outstanding voting securities of each Fund. These agreements automatically terminate in the event of their assignment by either DHCM or the Funds.
The Funds’ agreements are subject to annual approval by either: (i) their board of trustees, or (ii) a vote of the majority of the outstanding voting securities of each Fund. These agreements automatically terminate in the event of their assignment by either DHCM or the Funds.
Although the Company’s common shares are listed on the NASDAQ Global Select Market, the shares are held by a relatively small number of shareholders, and trading in its common shares is relatively inactive. The spread between the bid and the ask prices is often wide.
Although the Company’s common shares are listed on the The Nasdaq Global Select Market, the shares are held by a relatively small number of shareholders, and trading in its common shares is relatively inactive. The spread between the bid and the ask prices is often wide.
If current or potential clients decide to use one of the Company’s competitors, it could face a significant decline in market share, AUM, revenues, and net income.
If current or potential clients decide to use one of the Company’s competitors, it could face a significant decline in market share, AUM, AUA, revenues, and net income.
Natural disasters, outbreaks of epidemics or pandemics, terrorist attacks, extreme weather events or other unpredictable events could adversely affect the Company’s revenues, expenses, and net income by: • Decreasing investment valuations in, and returns on, the investment portfolios that the Company manages and its corporate investments, thus, causing reductions in revenue; • Causing disruptions in national or global economies that decrease investor confidence and make investment products generally less attractive; • Reducing the availability of key personnel necessary to conduct the Company’s business activities; • Interrupting the Company’s business operations or those of critical service providers; • Triggering technology delays or failures; and • Requiring substantial capital expenditures and operating expenses to restore the Company’s operations.
Natural disasters, outbreaks of epidemics or pandemics, terrorist attacks, extreme weather events or other unpredictable events could adversely affect the Company’s revenues, expenses, and net income by: • Decreasing investment valuations in, and returns on, the investment portfolios that the Company manages and its corporate investments, thus, causing reductions in revenue; • Causing disruptions in national or global economies that decrease investor confidence and make investment products generally less attractive; • Reducing the availability of key personnel necessary to conduct the Company’s business activities; • Interrupting the Company’s business operations or those of critical service providers; • Triggering technology delays or failures; and/or 14 Table of Contents • Requiring substantial capital expenditures and operating expenses to restore the Company’s operations.
ITEM 1A. Risk Factors The Company’s future results of operations, financial condition, liquidity, and capital resources as well as the market price of its common stock, are subject to various risks, including those risks mentioned below and elsewhere in this Form 10-K as well as those risks that are discussed from time-to-time in the Company’s other filings with the SEC.
ITEM 1A. Risk Factors The Company’s future results of operations, financial condition, liquidity, and capital resources as well as the market price of its common shares, are subject to various risks, including those risks mentioned below and elsewhere in this Form 10-K as well as those risks that are discussed from time-to-time in the Company’s other filings with the SEC.
Other than the Company’s Chief Executive Officer, its employees do not have employment contracts and generally can terminate their employment at any time. The Company may not be able to retain or replace key personnel. In order to retain or replace its key personnel, the Company may be required to increase compensation, which would decrease its net income.
Other than the Company’s Chief Executive Officer, its employees do not have employment contracts and generally can terminate their employment at any time. The Company may not be able to retain or replace key personnel. To retain or replace its key personnel, the Company may be required to increase compensation, which would decrease its net income.
The Company’s investment results and/or growth in its AUM may be constrained if appropriate investment opportunities are not available or if the Company closes certain of its investment strategies to new investors. The Company’s ability to deliver strong investment results depends in large part on its ability to identify appropriate investment opportunities in which to invest client assets.
The Company’s investment results and/or growth in its AUM may be constrained if appropriate investment opportunities are not available or if the Company closes certain of its investment strategies to new investors. The Company’s ability to deliver excellent investment results depends in large part on its ability to identify appropriate investment opportunities in which to invest client assets.
Negative public opinion could adversely affect the Company’s ability to attract and maintain clients, could expose the Company to potential litigation or regulatory action, and could have a material adverse effect on its stock price or result in heightened volatility.
Negative public opinion could adversely affect the Company’s ability to attract and maintain clients, could expose the Company to potential litigation or regulatory action, and could have a material adverse effect on its share price or result in heightened volatility.
Although the long-term effects of the current pandemic cannot currently be predicted, previous occurrences of other pandemic and epidemic diseases had an adverse effect on the economies of those countries in which they were most prevalent.
Although the long-term effects of the pandemic cannot be predicted, previous occurrences of other pandemic and epidemic diseases had an adverse effect on the economies of those countries in which they were most prevalent.
Whether information is corrupted, stolen, or inadvertently disclosed, and regardless of the type and nature of the information ( e.g. , proprietary information about the Company's business or personal information about clients or employees), the results could be multiple and materially harmful to us, including the following: • The Company's reputation could be harmed, resulting in the loss of clients, vendors, and employees or making payments or concessions to such persons to maintain its relationships with them; • The Company's inability to operate its business fully, even if temporarily, and thus, fulfill contracts with clients or vendors, could result in termination of contracts and loss of revenue; • Harm suffered by clients or vendors whose contracts have been breached, or by clients, vendors, or employees whose information is compromised, could result in costly litigation against us; • The Company's need to focus attention on remediation of a cyber issue could take its attention away from the operation of its business, resulting in lost revenue; • The Company could incur costs to repair systems made inoperable by a cyberattack and to make changes to its systems to reduce future cyber threats.
Whether information is corrupted, stolen, or inadvertently disclosed, and regardless of the type and nature of the information ( e.g. , proprietary information about the Company’s business or personal information about clients or employees), it could have various adverse impacts on, and be materially harmful to, the Company, including the following: • The Company’s reputation could be harmed, resulting in the loss of clients, vendors, and employees or making payments or concessions to such persons to maintain its relationships with them; • The Company’s inability to operate its business fully, even if temporarily, and thus, fulfill contracts with clients or vendors, could result in termination of contracts and loss of revenue; • Harm suffered by clients or vendors whose contracts have been breached, or by clients, vendors, or employees whose information is compromised, could result in costly litigation against us; • The Company’s need to focus attention on remediation of a cybersecurity issue could take its attention away from the operation of its business, resulting in lost revenue; • The Company could incur costs to repair systems made inoperable by a cyberattack and to make changes to its systems to reduce future cyber threats.
The occurrence of any of these risks could have a material adverse effect on the Company’s financial condition, results of operations, liquidity, capital resources and the value of its common stock. Please see “Forward Looking Statements” within Part I, Item 1, of this Form 10-K.
The occurrence of any of these risks could have a material adverse effect on the Company’s financial condition, results of operations, liquidity, capital resources and the value of its securities. Please see “Forward Looking Statements” within Part I, Item 1, of this Form 10-K.
The Company's business is subject to a variety of federal securities laws, including the Advisers Act, the 1940 Act, the Securities Act, the Exchange Act, the Sarbanes-Oxley Act of 2002, the U.S. PATRIOT Act of 2001, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The Company’s business is subject to a variety of federal securities laws, including the Advisers Act, the 1940 Act, the Securities Act, the Exchange Act, the Sarbanes-Oxley Act of 2002, the U.S. PATRIOT Act of 2001, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, each as amended.
In addition, the Company is subject to significant regulation and 13 Table of Contents oversight by the SEC. Changes in legal, regulatory, accounting, tax, and compliance requirements could have a significant effect on the Company’s operations and results, including, but not limited to, increased expenses and reduced investor interest in certain funds and other investment products that the Company offers.
In addition, the Company is subject to significant regulation and oversight by the SEC. Changes in legal, regulatory, accounting, tax, and compliance requirements could have a significant effect on the Company’s operations and results, including, but not limited to, increased expenses and reduced investor interest in certain funds and other investment products that the Company offers.
If information about the Company's employees is intentionally stolen or inadvertently made public, that information could be used to commit identity theft, obtain credit in an employee’s name, or steal from an employee.
If information about the Company’s employees or clients is intentionally stolen or inadvertently made public, that information could be used to commit identity theft, obtain credit in an employee’s or client’s name, or steal from an employee or client.
Investors should carefully consider these risks before making an investment decision regarding the Company’s common shares. There may be additional risks of which the Company is currently unaware, or which the Company currently considers to be immaterial.
Investors should carefully consider these risks before making an investment decision regarding the Company’s securities. There may be additional risks of which the Company is currently unaware, or which the Company currently considers to be immaterial.
Investor interest in the valuation of our fixed income strategies are affected by changes in interest rates and the overall credit environment. In addition, the majority of our existing AUM is managed in primarily long-only, equity investment strategies, which exposes us to greater risk than certain of our competitors who may manage assets in more diverse strategies.
Investor interest in the valuation of the Company’s fixed income strategies are affected by changes in interest rates and the overall credit environment. In addition, the majority of the Company’s existing AUM is managed in primarily long-only, equity investment strategies, which exposes it to greater risk than certain of its competitors who may manage assets in more diverse strategies.
The Company may not be able to implement effectively new technology-driven products and services or be successful in marketing these products and services to its clients. Failure to successfully keep pace with technological changes affecting the financial services industry could negatively affect the Company’s growth, revenue, and profit.
The Company may not be able to implement effectively new technology-driven products and services or be successful in marketing these products and services to its clients. Failure to successfully keep pace with technological changes affecting the financial services industry could negatively affect the Company’s growth, revenue, and profit. The Company operates in an intensely competitive business environment.
A recurrence of an outbreak of any kind of epidemic, communicable disease or virus or major public health issue could cause a slowdown in the levels of economic activity generally, which would adversely affect the Company’s business, financial condition and operations.
A recurrence of an outbreak of any kind of epidemic, communicable disease or virus or major public health issue could cause a slowdown in the levels of economic activity generally, which would adversely affect the Company’s business, financial condition and operations. ITEM 1B. Unresolved Staff Comments None.
Our efforts to establish and develop new strategies may face challenges or ultimately be unsuccessful, which could impact our results of operations, our reputation and culture.
The Company’s efforts to establish and develop new strategies may face challenges or ultimately be unsuccessful, which could impact its results of operations, reputation, and/or culture.
DHCM generated approximately 71%, 69%, and 75% of its 2022, 2021, and 2020 revenues, respectively, from its advisory and administration agreements with the Funds, including 34%, 11%, and 10% from the advisory contracts with the Diamond Hill Large Cap Fund, the Diamond Hill Long-Short Fund, and the Diamond Hill Small-Mid Cap Fund, respectively, during 2022.
DHCM generated approximately 68%, 71%, and 69% of its 2023, 2022, and 2021 revenues, respectively, from its advisory and administration agreements with the Funds, including 30%, 12%, and 10% from the advisory contracts with the Diamond Hill Large Cap Fund, the Diamond Hill Long-Short Fund, and the Diamond Hill Small-Mid Cap Fund, respectively, during 2023.
DHCM believes that it has strong relationships with the Funds and their boards of trustees, and it has no reason to believe that these advisory or administration contracts will not be renewed in the future. However, there can be no assurance that the Funds will choose to continue their relationships with DHCM.
DHCM believes that it has strong relationships with the Funds and their board of trustees, and it has no reason to believe that these advisory or administration contracts will not be renewed in the future.
In addition, if the Company determines that sufficient investment opportunities are not available for an investment strategy, or it believes that it is necessary to continue to produce attractive returns from an investment strategy, the Company will consider closing the investment strategy to new investors. As of December 31, 2022, the Company has two investment strategies closed to new investors.
In addition, if the Company determines that sufficient investment opportunities are not available for an investment strategy, or it believes that it is necessary to continue to produce attractive returns from an investment strategy, the Company will consider closing the investment strategy to new investors.
Specifically, the effects of the outbreak of the novel coronavirus (COVID-19) since early 2020 have negatively affected the global economy, the United States economy, and the global financial markets, and may disrupt the Company’s operations, which could have an adverse effect on the Company’s business, financial condition, and results of operations.
Specifically, the effects of the outbreak of the novel coronavirus (COVID-19) in early 2020 negatively affected the global economy, the U.S. economy, and the global financial markets, and demonstrated that pandemics may disrupt the Company’s operations, which could have an adverse effect on the Company’s business, financial condition, and results of operations.
If the Company loses the availability of employees, or if it is unable to respond adequately to such an event in a timely manner, revenues, expenses, and net income could be negatively impacted.
There is a risk that these vendors will not be able to perform in an adequate and timely manner. If the Company loses the availability of employees, or if it is unable to respond adequately to such an event in a timely manner, revenues, expenses, and net income could be negatively impacted.
Those changes could include, among other things, obtaining additional technologies as well as employing additional personnel and training employees; • The interruption of the Company’s business or theft of proprietary information could harm its ability to compete; and • Any losses that the Company may be responsible to bear may not be covered by insurance.
Those changes could include, among other things, obtaining additional technologies as well as employing additional personnel and training employees; • The interruption of the Company’s business or theft of proprietary information could harm its ability to compete; and • Any losses that the Company may be responsible to bear may not be covered by insurance. 12 Table of Contents Any of the above potential impacts of a cybersecurity incident could have a material adverse effect on the Company’s business, financial condition, and results of operations.
The Company has policies and procedures pursuant to which it takes numerous security measures to prevent cyberattacks of various kinds as well as fraudulent and inadvertent activity by persons who have been granted access to such confidential information. Nevertheless, the Company's systems, like all technology systems, remain vulnerable to unauthorized access, which can result in theft or corruption of information.
The Company has policies and procedures pursuant to which it takes numerous security measures to prevent cyberattacks of various kinds as well as fraudulent and inadvertent activity by persons who have been granted access to such sensitive or confidential information.
Operational Risks Cybersecurity attacks could prevent the Company from managing client portfolios, cause the unauthorized disclosure of sensitive or confidential client or employee information or result in misappropriation of information or funds, each of which could severely harm its business. 11 Table of Contents As part of its business, the Company collects, processes, and transmits sensitive and confidential information about its clients and employees, as well as proprietary information about its business.
Operational Risks Cybersecurity attacks could prevent the Company from managing client portfolios, cause the unauthorized disclosure of sensitive or confidential client or employee information or result in misappropriation of information or funds, each of which could severely harm its business.
The effective use of technology increases efficiency and enables financial institutions to better serve clients while reducing costs. The Company's future success depends, in part, upon its ability to address client needs by using technology to provide products and services that will satisfy client demands, as well as to create additional efficiencies in its operations.
The Company’s future success depends, in part, upon its ability to address client needs by using technology to provide products and services that will satisfy client demands, as well as to create additional efficiencies in its operations.
The Company has developed various backup systems and contingency plans but cannot be assured that those preparations will be adequate in all circumstances that could arise, or that material interruptions and disruptions will not occur.
The Company has developed various backup systems and contingency plans but cannot be assured that those preparations will be adequate in all circumstances that could arise, or that material interruptions and disruptions will not occur. The Company also relies to varying degrees on outside vendors for service delivery in addition to technology and disaster contingency support.
Additionally, over the past several years, investors have generally shown a preference for passive investment products over actively managed strategies. If this trend continues, the Company’s AUM may be negatively impacted.
Additionally, over the past several years, investors have generally shown a preference for passive investment products over actively managed strategies. If this trend continues, the Company’s AUM, revenues, and net income may be negatively impacted. Industry trends towards lower fee strategies and model portfolio arrangements could adversely impact the Company’s revenues.
Operational risks may disrupt the Company’s business, result in losses, or limit its growth. 12 Table of Contents The Company is dependent on the capacity and reliability of the communications, information, and technology systems supporting its operations, whether developed, owned, or operated internally by the Company or by third parties.
The Company is dependent on the capacity and reliability of the communications, information, and technology systems supporting its operations, whether developed, owned, or operated internally by the Company or by third parties.
All of these investments are subject to market risk and the Company’s non-operating investment income could be adversely affected by adverse market performance. Fluctuations in investment income are expected to occur in the future. Trading in the Company’s common shares is limited, which may adversely affect the time and the price at which shareholders can sell their shares.
Fluctuations in investment income are expected to occur in the future. 13 Table of Contents Trading in the Company’s common shares is limited, which may adversely affect the time and the price at which shareholders can sell their shares.
Any of the above potential impacts of a cybersecurity incident could have a material adverse effect on the Company’s business, financial condition, and results of operations. The Company may not be able to adapt to technological change. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.
The Company may not be able to adapt to technological change. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve clients while reducing costs.
Negative public opinion of the Company could cause it to lose clients and adversely affect its stock price.
However, there can be no assurance that the Funds will choose to continue their relationships with DHCM. 11 Table of Contents Negative public opinion of the Company could cause it to lose clients and adversely affect its share price.
If the Company misjudged the point at which it would be optimal to close an investment strategy, the investment results of the strategy could be negatively impacted. The Company is subject to substantial competition in all aspects of its business.
If the Company misjudged the point at which it would be optimal to close an investment strategy, the investment results of the strategy could be negatively impacted. The Company has closed investment strategies in the past and may do so again in the future. As of December 31, 2023, the Company does not have any closed investment strategies.
Removed
The Company also relies to varying degrees on outside vendors for service delivery in addition to technology and disaster contingency support, and there is a risk that these vendors will not be able to perform in an adequate and timely manner.
Added
Specifically, Charles Bath, a co-portfolio manager on our Large Cap strategy, which is our largest strategy by AUM and revenues, announced his retirement from the Company effective December 31, 2024. It is possible his departure could lead to increased redemptions resulting in a material decline in AUM and revenue.
Added
The Company has had a well-defined succession plan in place since 2018, when Austin Hawley was named co-portfolio manager on the Large Cap strategy. Mr. Hawley has worked closely with Mr. Bath for over 15 years, including the last six years as a co-portfolio manager.
Added
The Company is subject to substantial competition in all aspects of its business.
Added
Similarly, in recent years, there has been a trend in clients shifting their assets from higher fee mutual funds and separately managed accounts to lower fee model portfolio arrangements. As a result, a shift in the Company’s client assets from AUM to AUA could result in a decrease in Company revenues.
Added
As part of its business, the Company collects, processes, and transmits sensitive and confidential information about its clients and employees, as well as proprietary information about its business.
Added
Unauthorized access can come from unrelated third parties through the internet, from access to hardware removed from the Company’s or those third parties’ premises, or from employees acting intentionally or inadvertently.
Added
It may not be as successful as its competitors incorporating artificial intelligence (“AI”) into its business or adapting to a rapidly changing marketplace. The Company’s competitors may be larger, more diversified, better funded, and have access to more advanced technology, including AI.
Added
These competitive advantages may enable its competition to innovate better and more quickly, or to compete more effectively on quality and price, which could cause the Company to lose business and profitability. Burgeoning interest in AI may increase competition and disrupt the Company’s business model.
Added
AI may lower barriers to entry in the industry and the Company may be unable to effectively compete with the products or services offered by new competitors.
Added
AI-related changes to the products and services on offer may affect customer expectations, requirements, or tastes in ways that the Company cannot adequately anticipate or adapt to, causing its business to lose revenues, market share, or the ability to operate profitably and sustainably. Operational risks may disrupt the Company’s business, result in losses, or limit its growth.
Added
All of these investments are subject to market risk and the Company’s non-operating investment income could be adversely affected by market performance.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

14 edited+3 added−6 removed0 unchanged
Biggest changeThe Company does not make or endorse any predictions as to future stock performance. 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Cumulative 5 Year Total Return Diamond Hill Investment Group, Inc. $100 $76 $76 $87 $127 $128 28 % Russell 2000 Asset Managers & Custodians Index (a) $100 $84 $108 $145 $184 $143 43 % Russell Microcap® Index $100 $87 $106 $129 $154 $120 20 % Peer Group (b) $100 $73 $92 $107 $134 $99 (1) % 16 Table of Contents (a) The R2000 A&C Index used to calculate the returns includes the following companies: Altisource Portfolio Solutions S.A.
Biggest changeThe Company does not make or endorse any predictions as to future share performance. 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Cumulative 5 Year Total Return Diamond Hill Investment Group, Inc. $100 $100 $115 $167 $168 $156 56 % Russell 2000 Index $100 $126 $151 $173 $138 $161 61 % Russell 2000 Asset Managers & Custodians Index (a) $100 $129 $173 $220 $171 $235 135 % 17 Table of Contents (a) The R2000 A&C Index used to calculate the returns includes the following companies: AlTi Global, Inc.
A Rule 10b5-1 plan allows a company to purchase its stock at times when it would not ordinarily be in the market because of its trading policies or the possession of material nonpublic information.
A Rule 10b5-1 trading arrangement allows a company to purchase its shares at times when it would not ordinarily be in the market because of its trading policies or the possession of material nonpublic information.
Because repurchases under the 10b5-1 plan are subject to specified parameters and certain price, timing, and volume restraints specified in the plan, there is no guarantee as to the exact number of shares that will be repurchased or that there will be any repurchases at all pursuant to the plan.
Because repurchases under a Rule 10b5-1 trading arrangement are subject to specified parameters and certain price, timing, and volume restraints specified in the arrangement, there is no guarantee as to the exact number of common shares that will be repurchased or that there will be any repurchases at all pursuant to the arrangement.
The following table sets forth the high and low daily close prices during each quarter of 2022 and 2021: 2022 2021 High Price Low Price Quarterly Dividend Per Share Special Dividend Per Share High Price Low Price Quarterly Dividend Per Share Special Dividend Per Share Quarter ended: March 31 $ 206.90 $ 174.42 $ 1.50 — $ 175.00 $ 141.51 1.00 — June 30 $ 192.73 $ 166.54 $ 1.50 — $ 178.79 $ 158.59 1.00 — September 30 $ 196.00 $ 163.40 $ 1.50 — $ 184.60 $ 161.00 1.00 — December 31 $ 195.99 $ 161.51 $ 1.50 $ 4.00 $ 231.22 $ 178.75 1.00 $ 19.00 Due to the relatively low trading volume of DHIL’s shares, bid/ask spreads can be wide at times, and therefore, quoted prices may not be indicative of the price a shareholder may receive in an actual transaction.
The following table sets forth the high and low daily close prices during each quarter of 2023 and 2022: 2023 2022 High Price Low Price Quarterly Dividend Per Share Special Dividend Per Share High Price Low Price Quarterly Dividend Per Share Special Dividend Per Share Quarter ended: March 31 $ 191.47 $ 158.38 $ 1.50 — $ 206.90 $ 174.42 $ 1.50 — June 30 $ 178.18 $ 156.32 $ 1.50 — $ 192.73 $ 166.54 $ 1.50 — September 30 $ 187.24 $ 161.40 $ 1.50 — $ 196.00 $ 163.40 $ 1.50 — December 31 $ 171.99 $ 147.81 $ 1.50 — $ 195.99 $ 161.51 $ 1.50 $ 4.00 Due to the relatively low trading volume of DHIL’s common shares, bid/ask spreads can be wide at times, and therefore, quoted prices may not be indicative of the price a shareholder may receive in an actual transaction.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The following performance graph compares the total shareholder return of an investment in the Company’s common shares to that of the Russell Microcap® Index, the Russell 2000 Asset Managers & Custodians Index (the “R2000 A&C Index”), and to a peer group index of publicly-traded asset management firms (“Peer Group”) for the five-year period ended on December 31, 2022.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The following performance graph compares the cumulative total shareholder return of an investment in DHIL common shares to that of the Russell 2000 Index and the Russell 2000 Asset Managers & Custodians Index (the “R2000 A&C Index”) for the five-year period ended December 31, 2023.
Although DHIL currently expects to pay regular quarterly dividends, depending on the circumstances and the Board’s judgment, DHIL may not pay such dividends as described. The approximate number of record holders of DHIL’s common shares as of February 23, 2023 was 75.
Although DHIL currently expects to pay regular quarterly dividends, depending on the circumstances and the Board’s judgment, DHIL may not pay quarterly or special dividends. The approximate number of record holders of DHIL common shares as of February 28, 2024 was 71.
Diamond Hill Investment Group, Inc. Perella Weinberg Partners Ares Management Corporation Federated Hermes, Inc. PJT Partners, Inc. Arlington Asset Investment Corp. Financial Engines, Inc. Pzena Investment Management, Inc. Artisan Partners Asset Management, Inc. Focus Financial Partners, Inc. Sculptor Capital Management, Inc. Ashford Inc. GAMCO Investors, Inc. Silvercrest Asset Management Group Inc. AssetMark Financial Holdings, Inc. GCM Grosvenor, Inc.
(1) Cowen Inc. Patria Investments Ltd. (1) Altisource Portfolio Solutions S.A. Diamond Hill Investment Group, Inc. Perella Weinberg Partners Ares Management Corporation Federated Hermes, Inc. PJT Partners, Inc. Arlington Asset Investment Corp. Focus Financial Partners, Inc. Pzena Investment Management, Inc. Artisan Partners Asset Management, Inc. GAMCO Investors, Inc. Sculptor Capital Management, Inc. Ashford Inc. GCM Grosvenor, Inc.
StepStone Group, Inc. Associated Capital Group, Inc. Greenhill & Co., Inc. Victory Capital Holdings, Inc. B. Riley Financial, Inc. Hamilton Lane Incorporated Virtus Investment Partners, Inc. Blucora, Inc. Manning & Napier, Inc. Waddell & Reed Financial, Inc. BrightSphere Investment Group, Inc. Medley Management, Inc. Westwood Holdings Group, Inc. Brookfield Business Corp. MMA Capital Holdings, Inc. WisdomTree, Inc.
Silvercrest Asset Management Group Inc. AssetMark Financial Holdings, Inc. Greenhill & Co., Inc. StepStone Group, Inc. Associated Capital Group, Inc. Hamilton Lane Incorporated Victory Capital Holdings, Inc. Avantax, Inc. Manning & Napier, Inc. Virtus Investment Partners, Inc. B. Riley Financial, Inc. MMA Capital Holdings, Inc. Waddell & Reed Financial, Inc. BrightSphere Investment Group, Inc. Morgan Group Holding Co.
During the years ended December 31, 2022 and 2021, approximately 2,472,866 and 2,635,186, of DHIL’s common shares were traded, respectively. In addition to the regular quarterly dividends, the Board will decide whether to approve and pay an additional special dividend in the fourth quarter of each fiscal year.
During 2023 and 2022, approximately 3,143,990 and 2,472,866, of DHIL’s common shares were traded, respectively. Each fiscal quarter, the Board determines whether to approve and pay a regular quarterly dividend. In addition to the regular quarterly dividends, in the fourth quarter of each fiscal year, the Board decides whether to approve and pay a special dividend.
The 2022 Repurchase Program will expire upon the earlier of (i) February 25, 2024, or (ii) the completion of all authorized purchases under the program. In connection with the 2022 Repurchase Program, the Company has entered into a Rule 10b5-1 repurchase plan. This plan is intended to qualify for the safe harbor under Rule 10b5-1 of the Exchange Act.
The 2023 Repurchase Program will expire on May 10, 2025, or upon the earlier completion of all authorized purchases under the program. In connection with the 2023 Repurchase Program, DHIL entered into a Rule 10b5-1 trading arrangement. The Rule 10b5-1 trading arrangement is intended to qualify for the safe harbor under Rule 10b5-1 of the Exchange Act.
The approximate number of beneficial holders of DHIL’s common stock held by brokers, banks, and other intermediaries was greater than 8,000 as of February 23, 2023. 17 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table sets forth information regarding repurchases of DHIL’s common stock during the quarter ended December 31, 2022: Period Total Number of Shares Purchased (a) Average Price Paid Per Share Total Number of Shares Purchased as part of Publicly Announced Programs (b) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs (b) October 1, 2022 through October 31, 2022 19,929 $ 165.25 14,739 $ 15,994,565 November 1, 2022 through November 30, 2022 937 174.71 937 15,830,865 December 1, 2022 through December 31, 2022 2,600 $ 175.00 2,600 15,375,875 Total 23,466 18,276 $ 15,375,875 (a) The Company regularly withholds shares for tax payments due upon the vesting of employee restricted stock.
The approximate number of beneficial holders of DHIL common shares held by brokers, banks, and other intermediaries was greater than 8,000 as of February 28, 2024. 18 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table sets forth information regarding repurchases of DHIL common shares during the quarter ended December 31, 2023: Period Total Number of Shares Purchased (a) Average Price Paid Per Share Total Number of Shares Purchased as part of Publicly Announced Programs (b) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs (b) October 1, 2023 through October 31, 2023 40,329 $ 155.20 39,419 $ 35,235,719 November 1, 2023 through November 30, 2023 47,130 160.36 47,130 27,677,936 December 1, 2023 through December 31, 2023 7,657 $ 161.61 7,657 26,440,462 Total 95,116 94,206 $ 26,440,462 (a) The Company regularly withholds common shares for tax payments due upon the vesting of employee restricted shares.
Purchases may be made in the open market or through privately negotiated transactions. Purchases in the open market will be made in compliance with Rule 10b-18 under the Exchange Act. Sale of Unregistered Securities During the quarter ended December 31, 2022, DHIL did not sell any shares of its common stock that were not registered under the Securities Act.
Purchases in the open market are intended to comply with Rule 10b-18 under the Exchange Act. As of December 31, 2023, $26.4 million remained available for repurchases under the 2023 Repurchase Program. Sale of Unregistered Securities During the quarter ended December 31, 2023, DHIL did not sell any common shares that were not registered under the Securities Act.
During the quarter ended December 31, 2022, the Company withheld 5,190 shares of common stock for employee tax withholding obligations at an average price paid per share of $165.00. (b) On February 25, 2022, the Board authorized management to repurchase up to $50.0 million of Company common shares (the “2022 Repurchase Program”).
During the quarter ended December 31, 2023, the Company withheld 910 DHIL common shares for employee tax withholding obligations at an average price paid per share of $168.57.
The graph assumes that the value of the investment in the Company’s common shares and each index was $100 on December 31, 2017. Total return includes reinvestment of all dividends.
The graph assumes that the value of the investment in DHIL common shares and each index was $100 on December 31, 2018. Total return includes reinvestment of all dividends. The Russell 2000 Index measures the performance of approximately 2,000 small-cap U.S. equities, and was selected as a broad equity market index comprised of companies with comparable market capitalization to DHIL.
Removed
The Russell Microcap® Index makes up less than 3% of the U.S. equity market and is a market-value-weighted index of the smallest 1,000 securities in the small-cap Russell 2000® Index plus the next 1,000 smallest securities. The R2000 A&C Index is comprised of the Asset Managers & Custodians subsector of the Russell 2000 Index.
Added
The R2000 A&C Index is comprised of the Asset Managers & Custodians subsector of the Russell 2000 Index, and provides a comparison to companies with comparable market capitalization to DHIL that operate in the same industry as the Company. The historical information set forth below is not necessarily indicative of future performance.
Removed
Peer Group returns are weighted by the market capitalization of each firm at the beginning of the measurement period. Effective December 31, 2022, the Company has elected to replace the Russell Microcap Index and the Peer Group returns with the R2000 A&C Index as it believes that index provides a broader comparison than the Peer Group.
Added
Westwood Holdings Group, Inc. Brookfield Business Corp. Oppenheimer Holdings Inc. WisdomTree, Inc. Cohen & Steers, Inc. P10, Inc. (1) (1) Added to the R2000 A&C Index in 2023. Financial Engines, Inc. and Medley Management, Inc. were removed from the R2000 A&C Index in 2023. DHIL’s common shares trade on The Nasdaq Global Select Market under the ticker symbol DHIL.
Removed
The historical information set forth below is not necessarily indicative of future performance.
Added
(b) On May 10, 2023, the Board approved a repurchase plan, authorizing management to repurchase up to $50.0 million DHIL common shares in the open market and in private transactions in accordance with applicable securities laws (“2023 Repurchase Program”).
Removed
Cohen & Steers, Inc. Morgan Group Holding Co. Cowen Inc. Oppenheimer Holdings Inc. (b) The Peer Group is based upon all publicly-traded asset managers with market cap of less than $5 billion, excluding: (i) firms whose primary business is hedge funds or private equity, and (ii) firms with multiple lines of business.
Removed
The following companies are included in the Peer Group: Alliance Bernstein Holding L.P. Hennessy Advisors, Inc. Virtus Investment Partners, Inc. Artisan Partners Asset Management, Inc. Manning & Napier, Inc. Wisdomtree Investments, Inc. Cohen & Steers, Inc. Pzena Investment Management, Inc. Westwood Holdings Group, Inc. Federated Hermes, Inc. Teton Advisors, Inc. GAMCO Investors, Inc. U.S. Global Investors, Inc.
Removed
DHIL’s common shares trade on the NASDAQ Global Select Market under the ticker symbol DHIL.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

106 edited+36 added−26 removed30 unchanged
Biggest changeGAAP Basis $ 105,936 $ 76,258 $ 25,381 $ 26,050 $ 74,201 $ 23.34 42 % Non-GAAP Adjustments: Deferred compensation liability (1) (7,082) 7,082 (7,082) — — — 4 % Consolidated Funds (2) — 340 (6,192) (1,160) (3,304) (1.04) — Gain on sale of high-yield focused advisory contracts (3) — — (9,000) (2,339) (6,661) (2.10) — Other investment income (4) — — $ (3,107) (808) (2,299) (0.72) — Adjusted Non-GAAP basis $ 98,854 $ 83,680 — $ 21,743 $ 61,937 $ 19.48 46 % 35 Table of Contents Year Ended December 31, 2020 (in thousands, except percentages and per share data) Operating expenses Net operating income Non-operating income (loss) Income tax expense (5) Net income attributable to common shareholders Earnings per share attributable to common shareholders (diluted) Operating profit margin U.S.
Biggest changeYear Ended December 31, 2023 (in thousands, except percentages and per share data) Total operating expenses Net operating income Total non-operating income Income tax expense (5) Net income attributable to common shareholders Earnings per share attributable to common shareholders - diluted Net operating profit margin GAAP Basis $ 101,212 $ 35,504 $ 23,071 $ 15,490 $ 42,226 $ 14.32 26 % Non-GAAP Adjustments: Deferred compensation liability (1) (5,600) 5,600 (5,600) — — — 4 % Consolidated Funds (2) — 330 (4,148) (793) (2,166) (0.73) — Other investment income (4) — — $ (13,323) (3,571) (9,752) (3.31) — Adjusted Non-GAAP Basis $ 95,612 $ 41,434 — $ 11,126 $ 30,308 $ 10.28 30 % Year Ended December 31, 2022 (in thousands, except percentages and per share data) Total operating expenses Net operating income Total non-operating loss Income tax expense (5) Net income attributable to common shareholders Earnings per share attributable to common shareholders - diluted Net operating profit margin GAAP Basis $ 90,165 $ 64,331 $ (13,373) $ 14,088 $ 40,434 $ 13.01 42 % Non-GAAP Adjustments: Deferred compensation liability (1) 4,402 (4,402) 4,402 — — — (3) % Consolidated Funds (2) — 423 11,317 2,113 6,063 1.95 — Gain on sale of High Yield-Focused Advisory Contracts (3) — — (6,814) (1,761) (5,053) (1.63) — Other investment income (4) — — $ 4,468 1,155 3,313 1.07 — Adjusted Non-GAAP Basis $ 94,567 $ 60,352 — $ 15,595 $ 44,757 $ 14.40 39 % 36 Table of Contents Year Ended December 31, 2021 (in thousands, except percentages and per share data) Total operating expenses Net operating income Total non-operating income Income tax expense (5) Net income attributable to common shareholders Earnings per share attributable to common shareholders - diluted Net operating profit margin GAAP Basis $ 105,936 $ 76,258 $ 25,381 $ 26,050 $ 74,201 $ 23.34 42 % Non-GAAP Adjustments: Deferred compensation liability (1) (7,082) 7,082 (7,082) — — — 4 % Consolidated Funds (2) — 340 (6,192) (1,160) (3,304) (1.04) — % Gain on sale of High Yield-Focused Advisory Contracts (3) — — (9,000) (2,339) (6,661) (2.10) — % Other investment income (4) — — $ (3,107) (808) (2,299) (0.72) — % Adjusted Non-GAAP Basis $ 98,854 $ 83,680 — $ 21,743 $ 61,937 $ 19.48 46 % (1) This non-GAAP adjustment removes the compensation expense resulting from market valuation changes in the Deferred Compensation Plans’ liability and the related net gains/losses on investments designated as an economic hedge against the related liability.
The Company expects that its operating margin will fluctuate from period-to-period based on various factors, including revenues, investment results in the strategies the Company manages, employee performance, staffing levels, and gains and losses on investments held in deferred compensation plans.
The Company expects that its operating margin will fluctuate from period to period based on various factors, including revenues, investment results in the strategies the Company manages, employee performance, staffing levels, and gains and losses on investments held in the Deferred Compensation Plans.
DHCM is paid for its services by the program sponsor at a pre-determined rate based on AUA in the model delivery programs. DHCM does not have discretionary investment authority over individual client accounts in model delivery programs, and therefore, the AUA are not included in the Company’s AUM.
DHCM is paid for its services by the program sponsor at a pre-determined rate based on AUA in the model delivery programs. DHCM does not have discretionary investment authority over individual client accounts in model delivery programs, and therefore, the AUA is not included in the Company’s AUM.
Cash flow attributable to Consolidated Funds Eliminations As reported on the Consolidated Statement of Cash Flows Cash flows from operating activities: Net income (loss) $ 40,434,107 $ (11,739,448) $ 8,176,103 $ 36,870,762 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 1,377,610 — — 1,377,610 Share-based compensation 10,660,673 — — 10,660,673 Gain on sale of High Yield-Focused Advisory Contracts (6,813,579) — — (6,813,579) Net losses on investments 21,552,322 11,739,448 (8,819,876) 24,471,894 Net change in securities held by Consolidated Funds — (14,039,687) — (14,039,687) Other changes in assets and liabilities (17,563,539) 4,518,501 — (13,045,038) Net cash provided by (used in) operating activities 49,647,594 (9,521,186) (643,773) 39,482,635 Net cash provided by (used in) investing activities 5,330,622 — 703,249 6,033,871 Net cash provided by (used in) financing activities (72,333,307) 9,521,186 (59,476) (62,871,597) Net change during the year (17,355,091) — — (17,355,091) Cash and cash equivalents at beginning of year 80,550,393 — — 80,550,393 Cash and cash equivalents at end of year $ 63,195,302 $ — $ — $ 63,195,302 33 Table of Contents Year Ended December 31, 2021 Cash flow attributable to Diamond Hill Investment Group, Inc.
Cash flow attributable to Consolidated Funds Eliminations As reported on the Consolidated Statement of Cash Flows Cash flows from Operating Activities: Net income (loss) $ 40,434,107 $ (11,739,448) $ 8,176,103 $ 36,870,762 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 1,377,610 — — 1,377,610 Share-based compensation 10,660,673 — — 10,660,673 Gain on sale of High Yield-Focused Advisory Contracts (6,813,579) — — (6,813,579) Net (gains) losses on investments 21,552,322 11,739,448 (8,819,876) 24,471,894 Net change in securities held by Consolidated Funds — (14,039,687) — (14,039,687) Other changes in assets and liabilities (17,563,539) 4,518,501 — (13,045,038) Net cash provided by (used in) operating activities 49,647,594 (9,521,186) (643,773) 39,482,635 Net cash provided by investing activities 5,330,622 — 703,249 6,033,871 Net cash provided by (used in) financing activities (72,333,307) $ 9,521,186 $ (59,476) (62,871,597) Net change during the year (17,355,091) — — (17,355,091) Cash and cash equivalents at beginning of year 80,550,393 — — 80,550,393 Cash and cash equivalents at end of year $ 63,195,302 — — $ 63,195,302 Year Ended December 31, 2021 Cash flow attributable to Diamond Hill Investment Group, Inc.
The Company, through DHCM, recognizes revenue when it satisfies its performance obligations under the terms of a contract with a client. Model Delivery Programs - Assets Under Advisement DHCM provides strategy-specific model portfolios to sponsors of model delivery programs.
The Company, through DHCM, recognizes revenue when DHCM satisfies its performance obligations under the terms of a contract with a client. Model Delivery Programs - Assets Under Advisement DHCM provides strategy-specific model portfolios to sponsors of model delivery programs.
Treasury Bills 1-3 Month Index as of December 31, 2022. The percentage of composite assets that outperform is based on total Company composite assets as of December 31, 2022 excluding wrap fee accounts and restricted accounts. Composite net returns are calculated using the highest applicable standard separate account fee schedule.
Treasury Bills 1-3 Month Index as of December 31, 2023. The percentage of composite assets that outperform is based on total Company composite assets as of December 31, 2023, excluding wrap fee accounts and restricted accounts. Composite net returns are calculated using the highest applicable standard separate account fee schedule.
That decrease was partially offset by a $0.5 million increase in investment research and related conference fees, a $0.1 million increase in insurance expense, and a $0.2 million increase in IT staffing, hardware, and software expenses. Sales and Marketing . Sales and marketing expenses decreased by $0.5 million, or 7%, from 2021 compared to 2022.
That decrease was partially offset by a $0.5 million increase in investment research and related conference fees, a $0.1 million increase in insurance expense, and a $0.2 million increase in IT staffing, hardware, and software expenses. Sales and Marketing. Sales and marketing expenses for 2022 decreased by $0.5 million, or 7%, compared to 2021.
Mutual fund administration expenses decreased by $0.3 million, or 8%, from 2021 compared to 2022. Mutual fund administration expenses consist of both variable and fixed expenses. The variable expenses are based on Fund AUM levels and the number of shareholder accounts.
Mutual fund administration expenses for 2022 decreased by $0.3 million, or 8%, compared to 2021. Mutual fund administration expenses consist of both variable and fixed expenses. The variable expenses are based on Fund AUM levels and the number of shareholder accounts.
The sale of the High Yield-Focused Advisory Contracts was a nonrecurring transaction, thus, the Company believes that removing the impact of the gain helps readers understand the Company’s core operating results and improves comparability period to period.
The sale of the High Yield-Focused Advisory Contracts was a discrete transaction, thus, the Company believes that removing the impact of the gain helps readers understand the Company’s core operating results and improves comparability period to period.
These cash inflows were partially offset by the net change in securities held by the Consolidated Funds of $14.0 million, the cash impact of timing differences in the settlement of other assets and liabilities of $13.2 million, and the adjustment to net income of $6.8 million for the gain on sale of the High Yield-Focused Advisory Contracts.
These cash inflows were partially offset by the net change in securities held by the Consolidated Funds of $14.0 million, the cash impact of timing differences in the settlement of other assets and liabilities of $13.2 million, and the adjustment to net income of $6.8 million for the gain on sale of the High Yield- 32 Table of Contents Focused Advisory Contracts.
Operating profit margin was 42% for both 2022 and 2021 respectively. Adjusted operating profit margin was 39% for 2022 and 46% for 2021.
Net operating profit margin was 42% for both 2022 and 2021 respectively. Adjusted net operating profit margin was 39% for 2022 and 46% for 2021.
On average, the Company had 129 full-time equivalent employees in 2022 and 126 in 2021. Incentive compensation expense can fluctuate significantly period over period as the Company evaluates investment performance, individual performance, its own performance, and other factors. Deferred Compensation Expense (Benefit) . Deferred compensation benefit was $4.4 million for 2022 compared to an expense of $7.1 million for 2021.
On average, the Company had 129 employees in 2022 and 126 in 2021. Incentive compensation expense can fluctuate significantly period over period as the Company evaluates investment performance, individual performance, its own performance, and other factors. Deferred Compensation Expense (Benefit). Deferred compensation benefit was $4.4 million for 2022 compared to an expense of $7.1 million for 2021.
The following is a summary of the investment returns for each of the Company’s strategies as of December 31, 2022, relative to their respective core and value indices, as applicable. As of December 31, 2022 U.S.
The following is a summary of the investment returns for each of the Company’s strategies as of December 31, 2023, relative to their respective core and value indices, as applicable. As of December 31, 2023 U.S.
The remaining decrease in investment advisory fees was due to a decrease of 9% in average AUM year-over-year. The average advisory fee rate (excluding performance-based fees) was 0.52% for both 2022 and 2021. 27 Table of Contents Mutual Fund Administration Fees . Mutual fund administration fees decreased $1.9 million, or 16%, from 2021 compared to 2022.
The remaining decrease in investment advisory fees was due to a decrease of 9% in average AUM year over year. The average advisory fee rate (excluding performance-based fees) was 0.52% for both 2022 and 2021. Mutual Fund Administration Fees. Mutual fund administration fees decreased $1.9 million, or 16%, from 2021 compared to 2022.
The Company’s analysis to determine whether an entity is a VIE or a VRE involves judgment and considers several factors, including an entity’s legal organization, equity 36 Table of Contents structure, the rights of the investment holders, the Company’s ownership interest in the entity, and its contractual involvement with the entity.
The Company’s analysis to determine whether an entity is a VIE or a VRE involves judgment and considers several factors, including an entity’s legal organization, equity structure, the rights of the investment holders, the Company’s ownership interest in the entity, and its contractual involvement with the entity.
In addition to new clients, some larger plans moved from the Funds into the collective investment trusts. 2021 Discussion of Net Cash Inflows Both the Company’s equity and fixed income strategies experienced net inflows during 2021. Flows in the Company’s equity strategies were largely driven by its Large Cap strategy, which experienced net inflows of $2.1 billion.
In addition to new clients, some larger plans moved from the Funds into the CITs. 2021 Discussion of Net Cash Inflows Both the Company’s equity and fixed income strategies experienced net inflows during 2021. Flows in the Company’s equity strategies were largely driven by its Large Cap strategy, which experienced net inflows of $2.1 billion.
The Company had $20.2 million in investment losses due to market depreciation for 2022 compared to $16.4 million in investment income due to market appreciation for 2021.
The Company had $20.2 million in investment losses due to market declines for 2022 compared to $16.4 million in investment income due to market appreciation for 2021.
Cash provided by operating activities was primarily driven by net income of $36.9 million, and the add backs of net losses on investments of $24.5 million, share-based compensation of $10.7 million, and depreciation of $1.4 million.
Cash provided by operating activities was primarily driven by net income of $36.9 million, and the add backs of net losses on investments of $24.5 million, share-based compensation of $10.7 million, and market declines of $1.4 million.
A VIE is an entity that lacks sufficient equity to finance its activities, or any entity whose equity holders do not have defined power to direct the activities of the entity normally associated with an equity investment.
A VIE is an 37 Table of Contents entity that lacks sufficient equity to finance its activities, or any entity whose equity holders do not have defined power to direct the activities of the entity normally associated with an equity investment.
These cash outflows were partially offset by net subscriptions received in the Consolidated Funds from redeemable non-controlling interest holders of $10.3 million and proceeds received under the ESPP of $0.6 million.
These cash outflows were partially offset by net subscriptions received in the Consolidated Funds from redeemable non-controlling interest holders of $10.4 million and proceeds received under the ESPP of $0.4 million.
Adjusted operating profit margin excludes the impact of market movements on the deferred compensation liability and related economic hedges, and the impact of the Diamond Hill International Fund and the Diamond Hill Large Cap Concentrated Fund (together, the “Consolidated Funds”). See the "Non-GAAP Financial Measures and Reconciliation" section below in Part II, Item 7 of this Form 10-K.
Adjusted net operating profit margin excludes the impact of market movements on the deferred compensation liability and related economic hedges, and the impact of the Diamond Hill International Fund and the Diamond Hill Large Cap Concentrated Fund (together, the “Consolidated Funds”). See the “Non-GAAP Financial Measures and Reconciliation” section below in Part II, Item 7 of this Form 10-K.
Cash Flows from Financing Activities The Company’s cash flows from financing activities consist primarily of repurchases of its common stock, shares withheld related to employee tax withholding obligations, dividends paid on its common stock, proceeds received under the Diamond Hill Investment Group, Inc. Employee Stock Purchase Plan (“ESPP”), and distributions to, or contributions from, redeemable noncontrolling interest holders.
Cash Flows from Financing Activities The Company’s cash flows from financing activities consist primarily of the repurchase of DHIL common shares, dividends paid on DHIL common shares, DHIL common shares withheld related to employee tax withholding proceeds received under the Diamond Hill Investment Group, Inc. Employee Stock Purchase Plan (“ESPP”), and distributions to, or contributions from, redeemable noncontrolling interest holders.
Mutual fund administration fees include administration fees received from the Funds, which are calculated as a percentage of the Funds' average AUM. This decrease was primarily due to the impact of a 14% decrease in the Funds' average AUM from 2021 compared to 2022. Revenue - 2021 Compared to 2020 Investment Advisory Fees .
Mutual fund administration fees include administration fees received from the Funds, which are calculated as a percentage of the Funds’ average AUM. This decrease was primarily due to the impact of a 14% decrease in the Funds’ average AUM from 2021 compared to 2022.
As of December 31, 2022, $15.4 million remained available for repurchases under the 2022 Repurchase Program. Prior to the approval of the 2022 Repurchase Program, the Company repurchased shares under similar repurchase programs. The authority to repurchase share may be exercised from time to time as market conditions warrant and is subject to regulatory constraints.
As of December 31, 2023, $26.4 million remained available for repurchases under the 2023 Repurchase Program. Prior to the approval of the 2023 Repurchase Program, the Company repurchased shares under similar prior repurchase programs. The authority to repurchase shares may be exercised from time to time as market conditions warrant and is subject to regulatory constraints.
The Company’s main source of liquidity is cash flows from operating activities, which are generated from investment advisory and mutual fund administration fees. Cash and cash equivalents, investments held directly by DHCM, accounts receivable, and other current assets represented $182.9 million and $214.7 million of total assets as of December 31, 2022, and 2021, respectively.
The Company’s main source of liquidity is cash flows from operating activities, which are generated from investment advisory and mutual fund administration fees. Cash and cash equivalents, investments held directly by DHCM, accounts receivable, and other current assets represented $181.8 million and $182.9 million of total assets as of December 31, 2023, and 2022, respectively.
Year Ended December 31, 2022 Cash flow attributable to Diamond Hill Investment Group, Inc.
Year Ended December 31, 2023 Cash flow attributable to Diamond Hill Investment Group, Inc.
You should also consider the Company’s forward-looking statements in light of the risks discussed Part I, Item 1A, as well as our consolidated financial statements, related notes and other financial information appearing elsewhere in this Form 10-K and our other filings with the SEC. 18 Table of Contents Business Environment 1 The performance of the U.S. and international equity markets, as well as the U.S. fixed income market, have a direct impact on the Company’s operations and financial position. 2022 was a difficult operating environment for active investment managers.
You should also consider the Company’s forward-looking statements in light of the risks discussed Part I, Item 1A, as well as our consolidated financial statements, related notes and other financial information appearing elsewhere in this Form 10-K and our other filings with the SEC. 19 Table of Contents Business Environment 1 The performance of the U.S. and international equity markets, as well as the U.S. fixed income market, have a direct impact on the Company’s operations and financial position.
Cash flows provided by investing activities totaled $27.3 million for the year ended December 31, 2021. The cash provided was due to proceeds from the sale of Company-sponsored investments totaling $40.8 million and $9.0 million of proceeds received from the sale of the High Yield-Focused Advisory Contracts.
Cash flows provided by investing activities totaled $27.3 million in 2021. The cash provided was due to proceeds from the sale of Company-sponsored investments totaling $40.8 million and $9.0 million of proceeds received from the sale of the High Yield-Focused Advisory Contracts.
For the year ended December 31, 2022, net cash used in financing activities totaled $62.9 million, consisting of repurchases of DHIL’s common stock of $38.7 million, the payment of dividends of $30.7 million, and the value of shares withheld to cover employee tax withholding obligations of $3.4 million.
In 2022, net cash used in financing activities totaled $62.9 million, consisting of repurchases of DHIL’s common shares of $38.7 million, the payment of dividends of $30.7 million, and the value of shares withheld to cover employee tax withholding obligations of $3.4 million.
For the year ended December 31, 2021, net cash used in financing activities totaled $71.5 million, consisting of the payment of dividends of $73.0 million, repurchases of DHIL’s common stock of $7.8 million, and $1.6 million of shares withheld related to employee tax withholding obligations.
In 2021, net cash used in financing activities totaled $71.5 million, consisting of the payment of dividends of $73.0 million, repurchases of DHIL’s common shares of $7.8 million, and $1.6 million of shares withheld related to employee tax withholding obligations.
This discussion should be read in conjunction with the Company’s consolidated financial statements and notes to consolidated financial statements contained in this Form 10-K. Certain statements the Company makes under this Item 7 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. See “Cautionary Note Regarding Forward-Looking Statements” in Part I, Item 1.
This discussion should be read in conjunction with the Company’s consolidated financial statements and notes to consolidated financial statements contained in this Form 10-K. Certain statements the Company makes under this Item 7 constitute “forward-looking statements” under the PSLR Act. See “Cautionary Note Regarding Forward-Looking Statements” in Part I, Item 1.
Total fund assets for the 1-, 3-, 5-, 10-, and 15-year periods are $14.8B, $14.7B, $14.7B, $12.8B, and $12.8B respectively which represents between 50% and 60% of total firm assets for each period. 20 Table of Contents The percentage of the Company’s composites that outperform their benchmark includes all our composites (excluding Long-Duration Treasury) vs primary benchmark for each composite, except for the Long-Short Composite which uses a blended index that is a 60%/40% weighted blend of the Russell 1000 Index and the Bloomberg U.S.
Total fund assets for the 1-, 3-, 5-, 10-, and 15-year periods are $15.9B, $15.9B, $15.9B, $12.6B, and $12.5B, respectively, which represents between 45% and 60% of total Company assets for each period. 21 Table of Contents The percentage of the Company’s composites that outperform their benchmark includes all our composites (excluding Long-Duration Treasury) vs. the primary benchmark for each composite, except for the Long-Short Composite which uses a blended index that is a 60%/40% weighted blend of the Russell 1000 Index and the Bloomberg U.S.
Net cash provided by operating activities of $39.5 million was inclusive of $9.5 million of cash used in operations by the Consolidated Funds. For the year ended December 31, 2021, net cash provided by operating activities totaled $26.3 million.
Net cash provided by operating activities of $39.5 million was inclusive of $9.5 million of cash used in operations by the Consolidated Funds. In 2021, net cash provided by operating activities totaled $26.3 million.
The Company’s fixed income strategies saw mixed results with net flows of $0.3 billion into its Core Bond strategy offsetting outflows from its Short Duration Securitized Bond Fund of $0.2 billion. The Company has seen growth in its collective investment trust offerings.
The Company’s fixed income strategies saw mixed results with net flows of $0.3 billion into its Core Bond strategy offsetting outflows from its Short Duration Securitized Bond Fund of $0.2 billion. The Company also saw growth in its CIT offerings.
The year-over-year decrease in net income attributable to 26 Table of Contents common shareholders was primarily due to the decline of revenues as a result of decreased AUM and the decrease in performance-based fees, as well as investment losses in 2022 compared to investment gains in 2021 due to the market environment.
The year-over-year decrease in net income attributable to common shareholders was primarily due to the decline of revenues as a result of decreased AUM, the decrease in performance-based fees, and investment losses in 2022 due to the market environment.
The increase was due to an increase in variable expenses as a result of the increase in the average Fund AUM period over period. Liquidity and Capital Resources Sources of Liquidity The Company’s current financial condition is liquid, with a significant amount of its assets comprised of cash and cash equivalents, investments, accounts receivable, and other current assets.
The decrease was due to a reduction in variable expenses as a result of the decrease in the Funds’ average AUM period-over-period. 30 Table of Contents Liquidity and Capital Resources Sources of Liquidity The Company’s current financial condition is liquid, with a significant amount of its assets comprised of cash and cash equivalents, investments, accounts receivable, and other current assets.
Cash flow attributable to Consolidated Funds Eliminations As reported on the Consolidated Statement of Cash Flows Cash flows from Operating Activities: Net income $ 74,200,609 $ 5,851,988 $ (4,463,058) $ 75,589,539 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 1,281,420 — — 1,281,420 Share-based compensation 7,415,170 — — 7,415,170 Gain on sale of High Yield-Focused Advisory Contracts (9,000,000) — — (9,000,000) Net gains on investments (7,599,548) (5,851,988) 2,572,878 (10,878,658) Net change in securities held by Consolidated Funds — (50,430,607) — (50,430,607) Other changes in assets and liabilities 12,209,848 125,525 — 12,335,373 Net cash provided by (used in) operating activities 78,507,499 (50,305,082) (1,890,180) 26,312,237 Net cash provided by (used in) investing activities (14,631,872) — 41,896,371 27,264,499 Net cash provided by (used in) financing activities (81,803,436) 50,305,082 (40,006,191) (71,504,545) Net change during the year (17,927,809) — — (17,927,809) Cash and cash equivalents at beginning of year 98,478,202 — — 98,478,202 Cash and cash equivalents at end of year $ 80,550,393 $ — $ — $ 80,550,393 Year Ended December 31, 2020 Cash flow attributable to Diamond Hill Investment Group, Inc.
Cash flow attributable to Consolidated Funds Eliminations As reported on the Consolidated Statement of Cash Flows Cash flows from Operating Activities: Net income (loss) $ 74,200,609 $ 5,851,988 $ (4,463,058) $ 75,589,539 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 1,281,420 — — 1,281,420 Share-based compensation 7,415,170 — — 7,415,170 Gain on sale of High Yield-Focused Advisory Contracts (9,000,000) — — (9,000,000) Net (gains) losses on investments (7,599,548) (5,851,988) 2,572,878 (10,878,658) Net change in securities held by Consolidated Funds — (50,430,607) — (50,430,607) Other changes in assets and liabilities 12,209,848 125,525 — 12,335,373 Net cash provided by (used in) operating activities 78,507,499 (50,305,082) (1,890,180) 26,312,237 Net cash provided by (used in) investing activities (14,631,872) — 41,896,371 27,264,499 Net cash provided by (used in) financing activities (81,803,436) $ 50,305,082 $ (40,006,191) (71,504,545) Net change during the year (17,927,809) — — (17,927,809) Cash and cash equivalents at beginning of year 98,478,202 — — 98,478,202 Cash and cash equivalents at end of year $ 80,550,393 — — $ 80,550,393 35 Table of Contents Material Cash Commitments The Company’s material cash commitments consist of its obligations under its Deferred Compensation Plans, lease obligations, and other contractual amounts that will be due for the purchase of goods and services to be used in its operations.
Deferred compensation expense (benefit) is offset by an equal amount in investment income (loss) below net operating income on the consolidated statements of income, and thus, has no impact on net income attributable to the Company. 28 Table of Contents General and Administrative . General and administrative expenses decreased by $0.4 million, or 3%, from 2021 compared to 2022.
Deferred compensation expense (benefit) is offset by an equal amount in investment income (loss) below net operating income on the consolidated statements of income, and thus, has no impact on net income attributable to the Company. General and Administrative . General and administrative expenses increased by $1.3 million, or 10%, from 2022 compared to 2023.
The following is a summary of the Company’s AUM by product and investment objective, a roll-forward of the change in AUM, and a summary of AUA for the years ended December 31, 2022, 2021, and 2020: Assets Under Management and Assets Under Advisement As of December 31, (in millions) 2022 2021 2020 Diamond Hill Funds $ 14,745 $ 19,786 $ 17,615 Separately managed accounts 6,220 7,232 5,611 Collective investment trusts 1,040 603 318 Other pooled vehicles 2,758 3,407 2,867 Total AUM 24,763 31,028 26,411 Total AUA 1,802 2,098 1,099 Total AUM and AUA $ 26,565 $ 33,126 $ 27,510 23 Table of Contents Assets Under Management by Investment Strategy As of December 31, (in millions) 2022 2021 2020 U.S.
The following is a summary of the Company’s AUM by product and investment objective, a roll-forward of the change in AUM, and a summary of AUA for the years ended December 31, 2023, 2022, and 2021: Assets Under Management and Assets Under Advisement As of December 31, (in millions) 2023 2022 2021 Diamond Hill Funds $ 15,879 $ 14,745 $ 19,786 Separately managed accounts 6,617 6,220 7,232 Collective investment trusts 1,359 1,040 603 Other pooled vehicles 3,563 2,758 3,407 Total AUM 27,418 24,763 31,028 Total AUA 1,746 1,802 2,098 Total AUM and AUA $ 29,164 $ 26,565 $ 33,126 24 Table of Contents Assets Under Management by Investment Strategy As of December 31, (in millions) 2023 2022 2021 U.S.
The Large Cap strategy was soft closed during 2022. The strategy will be fully reopened on February 28, 2023. The Company’s Small-Mid Cap strategy remains soft closed to new investors. Net outflows from the Company’s other equity strategies totaled approximately $0.3 billion.
The Large Cap strategy was soft closed during 2022. The strategy was fully reopened on February 28, 2023. Net outflows from the Company’s other equity strategies totaled approximately $0.3 billion.
These non-GAAP financial measures should not be used as a substitute for financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”) and may be calculated differently by other companies. The following schedules reconcile financial measures calculated in accordance with GAAP to non-GAAP financial measures for the years ended December 31, 2022, 2021, and 2020, respectively.
These non-GAAP financial measures should not be used as a substitute for financial measures calculated in accordance with GAAP and may be calculated differently by other companies. The following schedules reconcile the differences between financial measures calculated in accordance with GAAP to non-GAAP financial measures for the years ended December 31, 2023, 2022, and 2021, respectively.
The 2022 Repurchase Program authorizes management to repurchase up to $50.0 million of the DHIL’s common shares in the open market and in private transactions in accordance with applicable securities laws. The 2022 Repurchase Program will expire upon the earlier of: (i) February 2024, and (ii) the completion of all authorized purchases under the program.
The 2023 Repurchase Program authorizes management to repurchase up to $50.0 million of DHIL’s common shares in the open market and in private transactions in accordance with applicable securities laws. The 2023 Repurchase Program will expire on May 10, 2025, or upon the earlier completion of all authorized purchases under the program.
The Company records performance-based fees at the end of the contract measurement period because the performance-based fees earned are constrained based on movements in the financial markets. Revenue Recognition when Acting as an Agent vs. Principal.
These fees are calculated based on client investment results over rolling five-year periods. The Company records performance-based fees at the end of the contract measurement period because the performance-based fees earned are constrained based on movements in the financial markets. Revenue Recognition when Acting as an Agent vs. Principal.
The increase in income tax expense was primarily due to an increase in the Company’s income before taxes, which was partially offset by a decrease in its effective tax rate from 26.8% to 25.6% year-over-year.
The increase in income tax expense was primarily due to an increase in the Company’s income before taxes, which was partially offset by a decrease in its effective tax rate from 27.6% to 26.4% year-over-year. The decrease in the Company’s effective tax rate in 2023 was primarily due to the benefit attributable to redeemable noncontrolling interests.
Non-GAAP Financial Measures and Reconciliation As supplemental information, the Company is providing certain financial measures that are based on methodologies other than U.S. generally accepted accounting principles (“non-GAAP”).
Non-GAAP Financial Measures and Reconciliation As a supplement to information calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company is providing certain financial measures that are based on methodologies other than GAAP (“non-GAAP”).
Its lease obligations are disclosed in Note 8 to the consolidated financial statements. The Company’s other material cash commitments for goods and services used in operations primarily consist of obligations related to long-term software licensing and maintenance contracts.
The Company’s other material cash commitments for goods and services used in operations primarily consist of obligations related to long-term software licensing and maintenance contracts.
These cash inflows were partially offset by net securities purchased by the Diamond Hill International Fund and the Diamond Hill Large Cap Concentrated Fund (together, the “Consolidated Funds”) of $50.4 million, net gains on investments of $10.9 million, and the adjustment to net income of $9.0 million for the gain on sale of the High Yield-Focused Advisory Contracts.
These cash inflows were partially offset by net securities purchased by the Consolidated Funds of $50.4 million, net gains on investments of $10.9 million, and the adjustment to net income of $9.0 million for the gain on sale of the High Yield-Focused Advisory Contracts.
(d) AUA is primarily comprised of Large Cap and All Cap Select strategies. 24 Table of Contents Change in Assets Under Management For the Year Ended December 31, (in millions) 2022 2021 2020 AUM at beginning of the year $ 31,028 $ 26,411 $ 23,399 Net cash inflows (outflows) Diamond Hill Funds (2,433) 1,994 879 Separately managed accounts (73) 168 (63) Collective investment trusts 486 182 236 Other pooled vehicles (221) (221) 477 (2,241) 2,123 1,529 Sale of High Yield-Focused Advisory Contracts — (3,456) — Net market appreciation (depreciation) and income (4,024) 5,950 1,483 Increase (decrease) during the year (6,265) 4,617 3,012 AUM at end of the year 24,763 31,028 26,411 Total AUA at end of year 1,802 2,098 1,099 Total AUM and AUA at end of year $ 26,565 $ 33,126 $ 27,510 Average AUM during the year $ 27,599 $ 30,297 $ 21,907 Net Cash Inflows (Outflows) Further Breakdown For the Year Ended December 31, (in millions) 2022 2021 2020 Net cash inflows (outflows) Equity $ (2,247) $ 958 $ (284) Fixed Income 6 1,165 1,813 $ (2,241) $ 2,123 $ 1,529 2022 Discussion of Net Cash Outflows Flows out of the Company’s equity strategies were largely driven by its Large Cap strategy, which experienced net outflows of $1.9 billion.
(b) AUA is primarily comprised of Large Cap and Select strategies. 25 Table of Contents Change in Assets Under Management For the Year Ended December 31, (in millions) 2023 2022 2021 AUM at beginning of the year $ 24,763 $ 31,028 $ 26,411 Net cash inflows (outflows) Diamond Hill Funds (599) (2,433) 1,994 Separately managed accounts (416) (73) 168 Collective investment trusts 153 486 182 Other pooled vehicles 368 (221) (221) (494) (2,241) 2,123 Sale of High Yield-Focused Advisory Contracts — — (3,456) Net market appreciation (depreciation) and income 3,149 (4,024) 5,950 Increase (decrease) during the year 2,655 (6,265) 4,617 AUM at end of the year 27,418 24,763 31,028 AUA at end of the year 1,746 1,802 2,098 Total AUM and AUA at end of year $ 29,164 $ 26,565 $ 33,126 Average AUM during the year $ 25,552 $ 27,599 $ 30,297 Average AUA during the year 1,769 1,952 1,748 Total Average AUM and AUA during the year $ 27,321 $ 29,551 $ 32,045 Net Cash Inflows (Outflows) Further Breakdown For the Year Ended December 31, (in millions) 2023 2022 2021 Net cash inflows (outflows) Equity $ (1,865) $ (2,247) $ 958 Fixed Income 1,371 6 1,165 $ (494) $ (2,241) $ 2,123 2023 Discussion of Net Cash Outflows Flows out of the Company’s equity strategies were largely driven by flows out of its Large Cap strategy, which experienced net outflows of $1.4 billion.
The Board and management regularly review various factors to determine whether the Company has capital in excess of that required for its business, and the appropriate uses of any such excess capital. Share Repurchases On February 25, 2022, the Board approved the 2022 Repurchase Program.
The Board and management regularly review various factors to determine whether the Company has capital in excess of that required for its business and what are the appropriate uses of any such excess capital, including share repurchases and/or the payment of dividends. Share Repurchases On May 10, 2023, the Board approved the 2023 Repurchase Program.
A summary of cash dividends paid during the years ended December 31, 2022, 2021, and 2020 is presented below: Year Regular Dividend Per Share Regular Dividend Total Special Dividend Per Share Special Dividend Total Total Dividend Per Share Total Dividends 2022 $ 6.00 $ 18,637,238 $ 4.00 $ 12,059,669 $ 10.00 $ 30,696,907 2021 $ 4.00 12,700,876 19.00 60,260,100 23.00 72,960,976 2020 — — $ 12.00 37,976,714 $ 12.00 37,976,714 Total $ 31,338,114 $ 110,296,483 $ 141,634,597 On February 23, 2023, the Board approved a regular quarterly dividend for the first quarter of 2023 of $1.50 per share to be paid on March 17, 2023, to shareholders of record as of March 6, 2023.
A summary of cash dividends paid during the years ended December 31, 2023, 2022, and 2021 is presented below: Year Regular Dividend Per Share Regular Dividend Total Special Dividend Per Share Special Dividend Total Total Dividend Per Share Total Dividends 2023 $ 6.00 $ 17,676,364 $ — $ — $ 6.00 $ 17,676,364 2022 $ 6.00 18,637,238 $ 4.00 12,059,669 $ 10.00 30,696,907 2021 $ 4.00 12,700,876 $ 19.00 60,260,100 $ 23.00 72,960,976 Total $ 49,014,478 $ 72,319,769 $ 121,334,247 On February 28, 2024, the Board approved a regular quarterly dividend for the first quarter of 2024 of $1.50 per share to be paid on March 22, 2024, to shareholders of record as of March 11, 2024.
These proceeds were partially offset by purchases of Company-sponsored investments of $14.9 million and property and equipment purchases (primarily capitalized software) of $2.5 million.
These proceeds were partially offset by purchases of Company-sponsored investments of $21.4 million and property and equipment purchases (primarily capitalized software) of $1.1 million.
(in thousands, except per share amounts and percentages) 2022 2021 % Change 2021 2020 % Change Total revenue $ 154,496 $ 182,194 (15)% $ 182,194 $ 126,388 44% Net operating income 64,331 76,258 (16)% 76,258 45,538 67% Adjusted net operating income (a) 60,352 83,680 (28)% 83,680 47,975 74% Investment income (loss), net (20,187) 16,381 (223)% 16,381 6,585 149% Gain on sale of high yield-focused advisory contracts 6,814 9,000 (24)% 9,000 — NM Income tax expense 14,088 26,050 (46)% 26,050 13,958 87% Net income attributable to common shareholders 40,434 74,201 (46)% 74,201 38,661 92% Earnings per share attributable to common shareholders (diluted) $ 13.01 $ 23.34 (44)% $ 23.34 $ 12.03 94% Adjusted earnings per share attributable to common shareholders (diluted) (a) $ 14.40 $ 19.48 (26)% $ 19.48 $ 10.96 78% Operating profit margin 42 % 42 % NM 42 % 36 % NM Adjusted operating profit margin (a) 39 % 46 % NM 46 % 38 % NM (a) Adjusted net operating income, adjusted earnings per share attributable to common shareholders (diluted), and adjusted operating profit margin are non-GAAP financial measures.
(in thousands, except per share amounts and percentages) 2023 2022 % Change 2022 2021 % Change Total revenue $ 136,716 $ 154,496 (12)% $ 154,496 $ 182,194 (15)% Net operating income 35,504 64,331 (45)% 64,331 76,258 (16)% Adjusted net operating income (a) 41,434 60,352 (31)% 60,352 83,680 (28)% Investment income (loss), net 23,071 (20,187) NM (20,187) 16,381 NM Gain on sale of High Yield-Focused Advisory Contracts — 6,814 (100)% 6,814 9,000 (24)% Income tax expense 15,490 14,088 10% 14,088 26,050 (46)% Net income attributable to common shareholders 42,226 40,434 4% 40,434 74,201 (46)% Earnings per share attributable to common shareholders (diluted) $ 14.32 $ 13.01 10% $ 13.01 $ 23.34 (44)% Adjusted earnings per share attributable to common shareholders (diluted) (a) $ 10.28 $ 14.40 (29)% $ 14.40 $ 19.48 (26)% Net operating profit margin 26 % 42 % NM 42 % 42 % NM Adjusted net operating profit margin (a) 30 % 39 % NM 39 % 46 % NM (a) Adjusted net operating income, adjusted earnings per share attributable to common shareholders (diluted), and adjusted net operating profit margin are non-GAAP financial measures.
See the “Non-GAAP Financial Measures and Reconciliation” section within this Form 10-K. Summary Discussion of Consolidated Results of Operations - 2022 Compared to 2021 Revenue for 2022 decreased $27.7 million compared to 2021, primarily due to a 9% decrease in average AUM and $1.5 million in performance-based fees earned in 2022 compared to $11.9 million of performance-based fees in 2021.
Summary Discussion of Consolidated Results of Operations - 2022 Compared to 2021 Revenue for 2022 decreased $27.7 million compared to 2021, primarily due to a 9% decrease in average AUM and $1.5 million in performance-based fees earned in 2022 compared to $11.9 million of performance-based fees in 2021.
This decrease was primarily due to a decrease of $0.7 million in consulting fees and $0.5 million of proxy solicitation fees related to the sale of the High Yield-Focused Advisory Contracts in 2021.
General and Administrative . General and administrative expenses for 2022 decreased by $0.4 million, or 3%, compared to 2021. This decrease was primarily due to a decrease of $0.7 million in consulting fees and $0.5 million of proxy solicitation fees related to the sale of the High Yield-Focused Advisory Contracts in 2021.
The Company expects that cash flows provided by operating activities will continue to serve as its primary source of working capital in the near future. For the year ended December 31, 2022, net cash provided by operating activities totaled $39.5 million.
The Company expects that cash flows provided by operating activities will continue to serve as its primary source of working capital in the near future. In 2023, net cash provided by operating activities totaled $34.7 million.
Employee compensation and benefits decreased by $3.1 million, or 4%, from 2021 compared to 2022.
Expenses - 2022 Compared to 2021 Compensation and Related Costs, Excluding Deferred Compensation Expense (Benefit). Employee compensation and benefits decreased by $3.1 million, or 4%, from 2021 compared to 2022.
Below is a summary of investments as of December 31, 2022 and 2021: As of December 31, 2022 2021 Corporate Investments: Diamond Hill Core Bond Fund $ 41,315,982 $ 46,755,404 Diamond Hill International Fund 36,084,204 41,673,154 Diamond Hill Large Cap Concentrated Fund 10,571,463 12,098,049 Diamond Hill Micro Cap Fund, LP 9,690,916 10,703,473 Total Corporate Investments 97,662,565 111,230,080 Deferred Compensation Plan Investments in the Funds 30,744,990 37,348,294 Total investments held by DHCM 128,407,555 148,578,374 Redeemable noncontrolling interest in Consolidated Funds 17,268,156 18,077,627 Total investments $ 145,675,711 $ 166,656,001 Cash Flow Analysis Cash Flows from Operating Activities The Company’s cash flows from operating activities are calculated by adjusting net income to reflect other significant operating sources and uses of cash, certain significant non-cash items (such as share-based compensation), and timing differences in the cash settlement of operating assets and liabilities.
Below is a summary of investments as of December 31, 2023 and 2022: As of December 31, 2023 2022 Corporate Investments: Diamond Hill International Fund $ 52,763,714 $ 36,084,204 Diamond Hill Core Bond Fund 34,003,006 41,315,982 Diamond Hill Micro Cap Fund, LP 12,482,396 9,690,916 Diamond Hill Large Cap Concentrated Fund 12,402,576 10,571,463 Total Corporate Investments 111,651,692 97,662,565 Deferred Compensation Plan Investments in the Funds 36,087,170 30,744,990 Total investments held by DHCM 147,738,862 128,407,555 Redeemable noncontrolling interest in the Consolidated Fund — 17,268,156 Total investments $ 147,738,862 $ 145,675,711 Cash Flow Analysis Cash Flows from Operating Activities The Company’s cash flows from operating activities are calculated by adjusting net income to reflect other significant operating sources and uses of cash, certain significant non-cash items (such as share-based compensation), and timing differences in the cash settlement of operating assets and liabilities.
Investment advisory fees increased by $51.0 million, or 43%, from 2020 to 2021. Investment advisory fees are calculated as a percentage of the market value of client accounts at contractual fee rates, which vary by investment product.
Investment advisory fees decreased by $15.1 million, or 10%, from 2022 to 2023. Investment advisory fees are calculated as a percentage of the market value of client accounts at contractual fee rates, which vary by investment product.
The Company believes that these sources of liquidity, as well as its continuing cash flows from operating activities, will be sufficient to meet its current and future operating needs for the next 12 months. 29 Table of Contents Uses of Liquidity The Company anticipates that its main uses of cash will be for operating expenses and seed capital to fund new and existing investment strategies.
The Company believes that these sources of liquidity, as well as its continuing cash flows from operating activities, will be sufficient to meet its current and future operating needs for the next 12 months.
The Company removes the impact of the Consolidated Funds because it believes they impact the reader’s ability to understand its core operating results. (3) This non-GAAP adjustment removes the impact of the gain on the sale of the High Yield-Focused Advisory Contracts.
The Company believes removing the impact of the Consolidated Funds helps readers understand its core operating results and improves comparability from period to period. (3) This non-GAAP adjustment removes the impact of the gain on the sale of the High Yield-Focused Advisory Contracts.
Equity Large Cap $ 16,478 $ 21,285 $ 15,075 Small-Mid Cap 2,646 3,183 2,810 Mid Cap 899 1,165 992 All Cap Select 392 438 446 Small Cap 306 597 556 Large Cap Concentrated 99 64 27 Micro Cap 15 16 — Total U.S.
Equity Large Cap $ 17,307 $ 16,478 $ 21,285 Small-Mid Cap 2,588 2,646 3,183 Mid Cap 1,023 899 1,165 Select 593 392 438 Small Cap 255 306 597 Large Cap Concentrated 98 99 64 Micro Cap 21 15 16 Total U.S.
The following table presents the results of certain key performance indicators over the past three fiscal years: For the Years Ended December 31, 2022 2021 2020 Ending AUM (in millions) $ 24,763 $ 31,028 $ 26,411 Average AUM (in millions) 27,599 30,297 21,907 Net cash inflows (outflows) (in millions) (2,241) 2,123 1,529 Ending AUM and AUA (in millions) 26,565 33,126 27,510 Total revenue (in thousands) 154,496 182,194 126,388 Net operating income 64,331 76,258 45,538 Adjusted net operating income (a) $ 60,352 $ 83,680 $ 47,975 Average advisory fee rate 0.52 % 0.56 % 0.54 % Average advisory fee rate, excluding performance fees 0.52 % 0.52 % 0.54 % Operating profit margin 42 % 42 % 36 % Adjusted operating profit margin (a) 39 % 46 % 38 % (a) Adjusted net operating income, and adjusted operating profit margin are non-GAAP financial measures.
The following table presents the results of certain key performance indicators over the past three fiscal years: For the Years Ended December 31, 2023 2022 2021 Ending AUM and AUA (in millions) $ 29,164 $ 26,565 $ 33,126 Average AUM and AUA (in millions) 27,321 29,551 32,045 Net cash inflows (outflows) (in millions) (494) (2,241) 2,123 Total revenue (in thousands) 136,716 154,496 182,194 Net operating income 35,504 64,331 76,258 Adjusted net operating income (a) $ 41,434 $ 60,352 $ 83,680 Average advisory fee rate 0.47 % 0.49 % 0.53 % Average advisory fee rate, excluding performance fees 0.47 % 0.48 % 0.49 % Net operating profit margin 26 % 42 % 42 % Adjusted net operating profit margin (a) 30 % 39 % 46 % (a) Adjusted net operating income and adjusted net operating profit margin are non-GAAP financial measures.
Amounts deferred under the deferred compensation plans are adjusted for appreciation/depreciation of investments chosen by participants. The Company believes it is useful to offset the non-operating investment income/loss realized on the hedges against the related compensation expense and remove the net impact to help readers understand the Company’s core operating results and to improves comparability from period to period.
The Company believes it is useful to offset the non-operating investment income or loss realized on the hedges against the related compensation expense and remove the net impact to help readers understand the Company’s core operating results and to improve comparability from period to period.
Equity Composites Inception 1 Year 3 Year 5 Year 10 Year Since Inception Diamond Hill Large Cap 6/30/2001 (13.35) % 6.01 % 7.37 % 11.47 % 8.79 % Russell 1000 Index (19.13) % 7.35 % 9.13 % 12.37 % 7.66 % Russell 1000 Value Index (7.54) % 5.96 % 6.67 % 10.29 % 7.12 % Diamond Hill Large Cap Concentrated 12/31/2011 (13.12) % 6.51 % 7.84 % 11.82 % 11.58 % Russell 1000 Index (19.13) % 7.35 % 9.13 % 12.37 % 12.74 % Russell 1000 Value Index (7.54) % 5.96 % 6.67 % 10.29 % 10.93 % Diamond Hill Mid Cap 12/31/2013 (13.12) % 3.94 % 4.87 % NA 6.81 % Russell Midcap Index (17.32) % 5.88 % 7.10 % NA 8.59 % Russell Midcap Value Index (12.03) % 5.82 % 5.72 % NA 7.78 % Diamond Hill Small-Mid Cap 12/31/2005 (13.54) % 4.79 % 5.16 % 9.83 % 8.14 % Russell 2500 Index (18.37) % 5.00 % 5.89 % 10.03 % 8.15 % Russell 2500 Value Index (13.08) % 5.22 % 4.75 % 8.93 % 7.22 % Diamond Hill Small Cap 12/31/2000 (14.67) % 4.25 % 3.28 % 7.81 % 9.32 % Russell 2000 Index (20.44) % 3.10 % 4.13 % 9.01 % 7.47 % Russell 2000 Value Index (14.48) % 4.70 % 4.13 % 8.48 % 8.19 % Diamond Hill Select 6/30/2000 (17.14) % 8.24 % 7.89 % 11.89 % 9.69 % Russell 3000 Index (19.21) % 7.07 % 8.79 % 12.13 % 6.58 % Russell 3000 Value Index (7.98) % 5.88 % 6.50 % 10.16 % 7.36 % Alternative Composites Diamond Hill Long-Short 6/30/2000 (7.75) % 3.70 % 5.32 % 7.46 % 7.06 % 60% Russell 1000 Index / 40% BofA ML U.S.
Equity Composites Inception 1 Year 3 Year 5 Year 10 Year Since Inception Diamond Hill Large Cap 6/30/2001 13.68 % 7.39 % 12.35 % 9.42 % 9.01 % Russell 1000 Index 26.53 % 8.97 % 15.52 % 11.80 % 8.44 % Russell 1000 Value Index 11.46 % 8.86 % 10.91 % 8.40 % 7.31 % Diamond Hill Large Cap Concentrated 12/31/2011 16.62 % 8.67 % 13.02 % 9.97 % 12.00 % Russell 1000 Index 26.53 % 8.97 % 15.52 % 11.80 % 13.83 % Russell 1000 Value Index 11.46 % 8.86 % 10.91 % 8.40 % 10.97 % Diamond Hill Mid Cap 12/31/2013 9.88 % 7.86 % 9.20 % 7.12 % 7.12 % Russell Midcap Index 17.23 % 5.92 % 12.68 % 9.42 % 9.42 % Russell Midcap Value Index 12.71 % 8.36 % 11.16 % 8.26 % 8.26 % Diamond Hill Small-Mid Cap 12/31/2005 11.50 % 8.15 % 10.39 % 7.20 % 8.32 % Russell 2500 Index 17.42 % 4.24 % 11.67 % 8.36 % 8.64 % Russell 2500 Value Index 15.98 % 8.81 % 10.79 % 7.42 % 7.69 % Diamond Hill Small Cap 12/31/2000 23.35 % 11.86 % 11.23 % 6.43 % 9.90 % Russell 2000 Index 16.93 % 2.22 % 9.97 % 7.16 % 7.87 % Russell 2000 Value Index 14.65 % 7.94 % 10.00 % 6.76 % 8.46 % Diamond Hill Select 6/30/2000 30.60 % 13.02 % 16.73 % 10.76 % 10.51 % Russell 3000 Index 25.96 % 8.54 % 15.16 % 11.48 % 7.34 % Russell 3000 Value Index 11.66 % 8.81 % 10.84 % 8.28 % 7.54 % Alternative Composites Diamond Hill Long-Short 6/30/2000 13.25 % 7.92 % 9.39 % 6.50 % 7.32 % 60% Russell 1000 Index / 40% BofA ML U.S.
Aggregate Index (13.01) % (2.71) % 0.02 % NA 0.06 % _______________________ - Composite returns are net of fees. - Index returns do not reflect any fees. 22 Table of Contents Key Financial Performance Indicators There are a variety of key performance indicators that the Company monitors to evaluate its business results.
Aggregate Index 5.53 % (3.31) % 1.10 % N/A 0.78 % _______________________ - Composite returns are net of fees. - Index returns do not reflect any fees. 23 Table of Contents Key Financial Performance Indicators There are a variety of key performance indicators that the Company monitors to evaluate its business results.
Expenses (in thousands, except percentages) 2022 2021 % Change 2021 2020 % Change Compensation and related costs, excluding deferred compensation expense (benefit) $ 70,505 $ 73,591 (4)% $ 73,591 $ 58,292 26% Deferred compensation expense (benefit) (4,402) 7,082 (162)% 7,082 2,219 219% General and administrative 13,607 14,021 (3)% 14,021 11,003 27% Sales and marketing 7,160 7,659 (7)% 7,659 6,000 28% Mutual fund administration 3,295 3,582 (8)% 3,582 3,336 7% Total $ 90,165 $ 105,935 (15)% $ 105,935 $ 80,850 31% Expenses - 2022 Compared to 2021 Compensation and Related Costs, Excluding Deferred Compensation Expense (Benefit) .
Expenses (in thousands, except percentages) 2023 2022 % Change 2022 2021 % Change Compensation and related costs, excluding deferred compensation expense (benefit) $ 70,731 $ 70,505 —% $ 70,505 $ 73,591 (4)% Deferred compensation expense (benefit) 5,600 (4,402) NM (4,402) 7,082 NM General and administrative 14,935 13,607 10% 13,607 14,021 (3)% Sales and marketing 6,684 7,160 (7)% 7,160 7,659 (7)% Mutual fund administration 3,262 3,295 (1)% 3,295 3,582 (8)% Total $ 101,212 $ 90,165 12% $ 90,165 $ 105,935 (15)% Expenses - 2023 Compared to 2022 Compensation and Related Costs, Excluding Deferred Compensation Expense (Benefit) .
Some of these contractual amounts may be cancellable under certain conditions and may involve termination fees. The Company expects to fund these cash commitments with future cash flow from operations. Its obligations under the deferred compensation plans are disclosed on the consolidated balance sheets with more information included in Note 7 to the consolidated financial statements.
Some of these contractual amounts may be cancellable under certain conditions and may involve termination fees. The Company expects to fund these cash commitments with future cash flow from operations and its Deferred Compensation Plans’ investments in the Funds.
The following table summarizes the Company’s annual share repurchase transactions: Year Total Number of Shares Purchased Average Price Paid Per Share Purchased Purchase Price of Shares Purchased 2022 217,009 $ 178.45 $ 38,726,007 2021 45,727 171.02 7,820,315 2020 157,750 118.21 18,646,982 Total 420,486 $ 155.04 $ 65,193,304 Dividends Fiscal 2022 was the 15th consecutive year that the Company paid a dividend.
The following table summarizes the Company’s annual share repurchase transactions: Year Total Number of Shares Purchased Average Price Paid Per Share Purchased Purchase Price of Shares Purchased 2023 212,638 $ 162.81 $ 34,619,944 2022 217,009 178.45 38,726,007 2021 45,727 171.02 7,820,315 Total 475,374 $ 157.65 $ 81,166,266 Dividends Fiscal 2023 was the 16th consecutive year that the Company paid a dividend.
Despite these overall flow trends, actively managed U.S. equity funds with a five-star Morningstar Rating TM did have positive flows, a reminder that investors will continue to select the best performing actively managed investment strategies.
Despite these overall flow trends, actively managed U.S. equity funds with a five-star Morningstar Rating TM had positive flows, a reminder that investors have continued to select the best performing actively managed investment strategies. Taxable bond funds in aggregate brought in $223 billion, $161 billion of which was into passively managed ETFs.
Incentive compensation expense can fluctuate significantly period over period as the Company evaluates investment performance, individual performance, its own performance, and other factors. Deferred Compensation Expense .
On average, the Company had 129 employees in 2023 and 2022. 29 Table of Contents Incentive compensation expense can fluctuate significantly period over period as the Company evaluates investment performance, individual performance, its own performance, and other factors. Deferred Compensation Expense (Benefit).
Revenue (in thousands, except percentages) 2022 2021 % Change 2021 2020 % Change Investment advisory $ 144,326 $ 170,138 (15)% $ 170,138 $ 119,125 43% Mutual fund administration, net 10,170 12,056 (16)% 12,056 7,263 66% Total $ 154,496 $ 182,194 (15)% $ 182,194 $ 126,388 44% Revenue - 2022 Compared to 2021 Investment Advisory Fees .
Revenue (in thousands, except percentages) 2023 2022 % Change 2022 2021 % Change Investment advisory $ 129,180 $ 144,326 (10)% $ 144,326 $ 170,138 (15)% Mutual fund administration, net 7,536 10,170 (26)% 10,170 12,056 (16)% Total $ 136,716 $ 154,496 (12)% $ 154,496 $ 182,194 (15)% 28 Table of Contents Revenue - 2023 Compared to 2022 Investment Advisory Fees.
Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Revenue Recognition on Performance-Based Advisory Contracts.
Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Revenue Recognition on Performance-Based Advisory Contracts. DHCM has certain investment advisory contracts in which a portion of the fees are based on investment performance achieved in the respective client portfolio in excess of a specified hurdle rate.
The increase was primarily due to a 36% increase in the Funds' average AUM from 2020 to 2021, and a reduction in administration fees paid on behalf of the Funds as a percentage of average Fund AUM year over year.
This decrease was primarily due to the impact of a 13% decrease in the Funds’ average AUM from 2022 compared to 2023, and an increase in administration fees paid on behalf of the Funds as a percentage of average Fund AUM. Revenue - 2022 Compared to 2021 Investment Advisory Fees.
Total composite assets for the 1-, 3-, 5-, 10-, and 15-year periods are $21.2B, $21.0B, $21.0B, $18.2B, and $18.2B respectively which represents between 73% and 85% of total firm assets for each period. 21 Table of Contents While the Company’s equity-focused strategies use core benchmarks to evaluate investment performance over full market cycles, many clients also compare results to value benchmarks.
None of the Company’s composites and composite assets outperformed their benchmarks for both the 10- and 15-year periods. 22 Table of Contents While the Company’s equity-focused strategies use core benchmarks to evaluate investment performance over full market cycles, many clients also compare results to value benchmarks.
(4) This non-GAAP adjustment represents the net gains/losses earned on the Company’s non-consolidated investment portfolio that are not designated as economic hedges of the deferred compensation plan liability, non-consolidated seed investments, and other investments. The Company believes adjusting for these non-operating income/loss items helps readers understand the Company’s core operating results and improves comparability to prior years.
(4) This non-GAAP adjustment represents the net gains or losses earned on the Company’s non-consolidated investment portfolio that are not designated as economic hedges of the Deferred Compensation Plans’ liability, non-consolidated seed investments, and other investments.
Deferred compensation expense is offset by an equal amount in investment income below net operating income on the consolidated statements of income statement, and thus, has no impact on net income attributable to the Company. General and Administrative . General and administrative expenses increased by $3.0 million, or 27%, from 2020 to 2021.
The gain (loss) on the Deferred Compensation Plans’ investments increases (decreases) deferred compensation expense (benefit) and is included in operating income. Deferred compensation expense (benefit) is offset by an equal amount in investment income (loss) below net operating income on the consolidated statements of income, and thus, has no impact on net income attributable to the Company.
Equity 20,835 26,748 19,906 Alternatives Long-Short 1,752 1,998 2,056 Total Alternatives 1,752 1,998 2,056 Global/International Equity International 52 56 17 Global (a) — — 16 Total Global/International Equity 52 56 33 Fixed Income Short Duration Securitized Bond 1,308 1,613 1,132 Core Fixed Income 792 622 541 Long Duration Treasury 33 51 62 Corporate Credit (b) — — 2,020 High Yield (b) — — 724 Total Fixed Income 2,133 2,286 4,479 Total-All Strategies 24,772 31,088 26,474 (Less: Investments in affiliated funds) (c) (9) (60) (63) Total AUM 24,763 31,028 26,411 Total AUA (d) 1,802 2,098 1,099 Total AUM and AUA 26,565 33,126 27,510 (a) The Diamond Hill Global Fund was liquidated on December 17, 2021.
Equity 21,885 20,835 26,748 Alternatives Long-Short 1,725 1,752 1,998 Total Alternatives 1,725 1,752 1,998 International Equity International 109 52 56 Total International Equity 109 52 56 Fixed Income Short Duration Securitized Bond 1,948 1,308 1,613 Core Fixed Income 1,735 792 622 Long Duration Treasury 26 33 51 Total Fixed Income 3,709 2,133 2,286 Total-All Strategies 27,428 24,772 31,088 (Less: Investments in affiliated funds) (a) (10) (9) (60) Total AUM 27,418 24,763 31,028 Total AUA (b) 1,746 1,802 2,098 Total AUM and AUA $ 29,164 $ 26,565 $ 33,126 (a) Certain of the Funds own shares of the Diamond Hill Short Duration Securitized Bond Fund.
The Company expects that its operating margin will fluctuate from period to period based on various factors, including revenues, investment results, employee performance, staffing levels, gains and losses on investments held in deferred compensation plans, and the development of investment strategies, products, or channels. The Company recognized $16.4 million in investment income for 2021 compared to $6.6 million for 2020.
The Company expects that its operating margin will fluctuate from period to period based on various factors, including revenues, investment results in the strategies the Company manages, employee performance, staffing levels, and gains and losses on investments held in the Diamond Hill Fixed Term Deferred Compensation Plan and the Diamond Hill Variable Term Deferred Compensation Plan (together, the “Deferred Compensation Plans”).
(5) The income tax expense impacts were calculated and resulted in an overall non-GAAP effective tax rate of 25.8% for 2022, 26.0% for 2021 and 26.5% for 2020.
The Company believes adjusting for these non-operating income or loss items helps readers understand the Company’s core operating results and improves comparability from period to period. (5) The income tax expense impacts were calculated and resulted in an overall non-GAAP effective tax rate of 26.8% for 2023, 25.8% for 2022 and 26.0% for 2021.
Past performance is no guarantee of future results. 19 Table of Contents Investment Results It is imperative that the Company provide its clients with excellent investment returns over long periods of time. Investment results are the key driver of long-term success as well as the Company’s ability to grow AUM.
Past performance is no guarantee of future results. 20 Table of Contents Investment Results It is imperative that the Company generate strong long-term investment results. Strong investment performance is the key driver of long-term success and meaningfully influences the Company’s ability to attract and retain clients.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThese investments have inherent market risk in the form of price risk; that is, the potential future loss of value that would result from a decline in their fair value. Market prices fluctuate, and the amount realized upon subsequent sale may differ significantly from the reported market value.
Biggest changeThese investments have inherent market risk in the form of price risk due to the potential future loss of value that would result from a decline in their fair value. Market prices fluctuate, and the amount realized upon subsequent sale may differ significantly from the reported market value.
The table below summarizes the Company’s market risks as of December 31, 2022, and shows the effects of a hypothetical 10% increase and decrease in investments.
The table below summarizes the Company’s market risks as of December 31, 2023, and shows the effects of a hypothetical 10% increase and decrease in investments.
Removed
Fair Value as of December 31, 2022 Fair Value Assuming a Hypothetical 10% Increase Fair Value Assuming a Hypothetical 10% Decrease Equity investments $ 101,265,748 $ 111,392,323 $ 91,139,173 Fixed Income investments 44,409,963 48,850,959 39,968,967 Total $ 145,675,711 $ 160,243,282 $ 131,108,140 37
Added
Fair Value as of December 31, 2023 Fair Value Assuming a Hypothetical 10% Increase Fair Value Assuming a Hypothetical 10% Decrease Equity investments $ 110,296,156 $ 121,325,772 $ 99,266,540 Fixed Income investments 37,442,706 41,186,977 33,698,435 Total $ 147,738,862 $ 162,512,749 $ 132,964,975 38

Other DHIL 10-K year-over-year comparisons