Equity Method Investments in Affiliates

6 Months Ended

Jun. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

The following table presents the change in Equity method investments in Affiliates (net):



	Equity Method Investments in Affiliates (Net)
Balance, as of December 31, 2018	$	2,791.0
Earnings	148.3
Intangible amortization and impairments	(477.1		)
Distributions of earnings	(155.9		)
Investments in Affiliates	59.8
Divestments of Affiliates	(28.8		)
Other	(7.1		)
Balance, as of June 30, 2019	$	2,330.2

Definite-lived acquired client relationships at the Company’s equity method Affiliates are amortized over their expected period of economic benefit. The Company recognized amortization expense for these relationships of $23.5 million and $53.5 million for the three and six months ended June 30, 2018, respectively, and $38.9 million and $62.1 million for the three and six months ended June 30, 2019, respectively. Based on relationships existing as of June 30, 2019, the Company estimates the annual amortization expense attributable to its equity method Affiliates will be approximately $150 million in each of 2019 and 2020, and approximately $75 million in each of 2021, 2022 and 2023.

In connection with one of the Company’s investments in a non-U.S. alternative Affiliate accounted for under the equity method, a minority owner has the right to elect to sell a portion of its ownership interest in the Affiliate to the Company annually. In the first quarter of 2019, the minority owner elected to sell a 5% ownership interest in the Affiliate to the Company for $25.7 million, which settled in the three months ended June 30, 2019.

In the first quarter of 2019, the Company recognized a $415.0 million expense to reduce the carrying value of one of its equity method Affiliates to its fair value. A series of precipitating events led the Company to conclude in March 2019 that the growth expectations of a U.S. credit alternative Affiliate of the Company had declined significantly, which the Company determined constituted a triggering event. The Affiliate’s flagship product had underperformed. The cumulative effect of associated redemptions and scaled-down fundraising expectations reduced expected asset and performance based fees and operating margin at the Affiliate. This led to a significant decrease in projected operating cash flows available to fund the Affiliate’s growth strategy, prompting a change in the strategic objectives of the Affiliate, including exiting the systematic equity business and reducing the number of new investment strategies being pursued. The Company determined that the estimated fair value of the Affiliate had declined meaningfully. Therefore, the Company performed a valuation to determine whether the fair value of the Affiliate had declined below its carrying value using a discounted cash flow analysis, a level 3 fair value measurement. The Company assumed projected compounded asset based fee growth over the first five years of (13)%,

discount rates of 11% and 20% for asset and performance based fees, respectively, and a market participant tax rate of 25%. Based on the discounted cash flow analysis, the Company concluded that the fair value of its investment had declined below its carrying value and that the decline was other-than-temporary.