10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2013

Or

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______to______

Commission file number 001-33761

PZENA INVESTMENT MANAGEMENT, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	20-8999751
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

120 West 45th Street

New York, New York 10036

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (212) 355-1600

Not Applicable

(Former name, former address, and former fiscal year if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

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

As of August 1, 2013, there were 12,202,294 outstanding shares of the registrant’s Class A common stock, par value $0.01 per share.

As of August 1, 2013, there were 52,347,732 outstanding shares of the registrant’s Class B common stock, par value $0.000001 per share.

PZENA INVESTMENT MANAGEMENT, INC.

FORM 10-Q

TABLE OF CONTENTS

			Page
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
		Consolidated Statements of Financial Condition of Pzena Investment Management, Inc. as of June 30, 2013 (unaudited) and December 31, 2012	1
		Consolidated Statements of Operations (unaudited) of Pzena Investment Management, Inc. for the Three and Six Months Ended June 30, 2013 and 2012	2
		Consolidated Statement of Changes in Equity (unaudited) of Pzena Investment Management, Inc. for the Six Months Ended June 30, 2013	3
		Consolidated Statements of Cash Flows (unaudited) of Pzena Investment Management, Inc. for the Three and Six Months Ended June 30, 2013 and  2012	4
		Notes to the Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		37
Item 4.	Controls and Procedures		38
	PART II — OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 6.	Exhibits		39
SIGNATURES

i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements.  Forward-looking statements provide our current expectations, or forecasts, of future events.  Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts.  Words or phrases such as “anticipate,” “believe,” “continue,” “ongoing,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements.  Our actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in Item 1A, “Risk Factors” in Part I of our Annual Report on Form 10-K for our fiscal year ended December 31, 2012.  Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date of this Quarterly Report.  We undertake no obligation to publicly revise any forward-looking statements to reflect circumstances or events after the date of this Quarterly Report, or to reflect the occurrence of unanticipated events.  You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission, or SEC, after the date of this Quarterly Report on Form 10-Q.

Forward-looking statements include, but are not limited to, statements about:

• our anticipated future results of operations and operating cash flows;

• our business strategies and investment policies;

• our financing plans and the availability of short- or long-term borrowing, or equity financing;

• our competitive position and the effects of competition on our business;

• potential growth opportunities available to us;

• the recruitment and retention of our employees;

• our expected levels of compensation for our employees;

• our potential operating performance, achievements, efficiency, and cost reduction efforts;

• our expected tax rate;

• changes in interest rates;

• our expectation with respect to the economy, capital markets, the market for asset management services, and other industry trends; and

• the impact of future legislation and regulation, and changes in existing legislation and regulation, on our business.

The reports that we file with the SEC, accessible on the SEC’s website at www.sec.gov, identify additional factors that can affect forward-looking statements.

ii

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

PZENA INVESTMENT MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share and per-share amounts)

	As of
	June 30, 2013		December 31, 2012
	(unaudited)
ASSETS
Cash and Cash Equivalents	$	25,675	$	32,645
Restricted Cash	1,031		1,030
Due from Broker	85		22
Advisory Fees Receivable	18,374		14,626
Investments, at Fair Value	8,323		5,170
Receivable from Related Parties	131		83
Other Receivables	536		51
Prepaid Expenses and Other Assets	666		585
Deferred Tax Asset, Net of Valuation Allowance of $58,185 and $59,917 in 2013 and 2012, respectively	10,372		9,688
Property and Equipment, Net of Accumulated Depreciation of $2,772 and $2,695 in 2013 and 2012, respectively	707		779
TOTAL ASSETS	$	65,900	$	64,679
LIABILITIES AND EQUITY
Liabilities:
Accounts Payable and Accrued Expenses	$	10,059	$	4,305
Due to Broker	68		23
Liability to Selling and Converting Shareholders	9,602		9,656
Lease Liability	991		1,203
Deferred Compensation Liability	1,039		1,327
Other Liabilities	146		199
TOTAL LIABILITIES	21,905		16,713
Equity:
Preferred Stock (Par Value $0.01; 200,000,000 Shares Authorized; None Outstanding)	—		—
Class A Common Stock (Par Value $0.01; 750,000,000 Shares Authorized; 12,210,592  and 11,149,941 Shares Issued and Outstanding in 2013 and 2012, respectively)	121		111
Class B Common Stock (Par Value $0.000001; 750,000,000 Shares Authorized; 52,190,656 and 53,482,324 Shares Issued and Outstanding in 2013 and 2012, respectively)	—		—
Additional Paid-In Capital	10,935		11,765
Retained Earnings	2,988		2,693
Total Pzena Investment Mangement, Inc.'s Equity	14,044		14,569
Non-Controlling Interests	29,951		33,397
TOTAL EQUITY	43,995		47,966
TOTAL LIABILITIES AND EQUITY	$	65,900	$	64,679

See accompanying notes to consolidated financial statements.

1

PZENA INVESTMENT MANAGEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per-share amounts)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
REVENUE	$	22,132		$	18,339		$	42,974		$	38,107
EXPENSES
Compensation and Benefits Expense	8,914			8,012			18,522			16,185
General and Administrative Expense	1,943			1,916			3,752			3,619
Total Operating Expenses	10,857			9,928			22,274			19,804
Operating Income	11,275			8,411			20,700			18,303
OTHER INCOME/(EXPENSE)
Interest Income	27			41			54			95
Interest Expense	—			—			—			(26		)
Dividend Income	87			34			116			58
Net Realized and Unrealized Gain/ (Loss) from Investments	414			(189		)	1,265			666
Change in Liability to Selling and Converting Shareholders	(229		)	315			(1,268		)	(658		)
Other (Expense)/ Income	(48		)	(72		)	(88		)	33
Total Other Income	251			129			79			168
Income Before Income Taxes	11,526			8,540			20,779			18,471
Income Tax Expense	1,234			1,534			796			1,780
Net Income	10,292			7,006			19,983			16,691
Less: Net Income Attributable to Non-Controlling Interests	9,026			6,392			17,548			15,070
Net Income Attributable to Pzena Investment Management, Inc.	$	1,266		$	614		$	2,435		$	1,621
Net Income for Basic Earnings per Share	$	1,266		$	614		$	2,435		$	1,621
Basic Earnings per Share	$	0.10		$	0.06		$	0.21		$	0.15
Basic Weighted Average Shares Outstanding	12,315,065			10,565,406			11,793,938			10,570,247
Net Income for Diluted Earnings per Share	$	6,358		$	614		$	12,268		$	10,032
Diluted Earnings per Share	$	0.10		$	0.06		$	0.18		$	0.15
Diluted Weighted Average Shares Outstanding1	66,562,823			10,565,406			66,550,266			65,395,327
Cash Dividends per Share of Class A Common Stock	$	0.03		$	0.03		$	0.19		$	0.22

^{1 Under the "two-class method," restricted Class B units that are considered participating securities are required to be included in the computation of diluted earnings per share.} 

See accompanying notes to consolidated financial statements.

2

PZENA INVESTMENT MANAGEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(in thousands, except share and per-share amounts)

	Shares of Class A Common Stock		Shares of Class B Common Stock		Class A Common Stock			Additional Paid-In Capital			Retained Earnings			Non-Controlling Interests			Total
Balance at December 31, 2012	11,149,941		53,482,324		$	111		$	11,765		$	2,693		$	33,397		$	47,966
Unit Conversion	1,328,334		(1,328,334	)	13			746			—			(640		)	119
Amortization of Non-Cash Compensation	7,414		36,666		—			270			—			1,211			1,481
Directors' Shares	—		—		—			27			—			123			150
Net Income	—		—		—			—			2,435			17,548			19,983
Repurchase and Retirement of Class A Common Stock	(275,097	)	—		(3		)	(1,681		)	—			—			(1,684		)
Repurchase and Retirement of Class B Unit Options	—		—		—			(14		)				(57		)	(71		)
Class A Cash Dividends Declared and Paid ($0.19 per share)	—		—		—			—			(2,140		)	—			(2,140		)
Distributions to Non-Controlling Interests	—		—		—			—			—			(21,809		)	(21,809		)
Other	—		—		—			(178		)				178			—
Balance at June 30, 2013	12,210,592		52,190,656		$	121		$	10,935		$	2,988		$	29,951		$	43,995

See accompanying notes to consolidated financial statements.

3

PZENA INVESTMENT MANAGEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
OPERATING ACTIVITIES
Net Income	$	10,292		$	7,006		$	19,983		$	16,691
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation	38			57			77			115
Disposal of Fixed Assets	—			—			—			(93		)
Non-Cash Compensation	1,225			665			2,519			1,351
Director Share Grant	75			70			150			140
Net Realized and Unrealized (Gain)/Loss from Investments	(414		)	189			(1,265		)	(666		)
Change in Liability to Selling and Converting Shareholders	229			(315		)	1,268			658
Deferred Income Taxes	527			956			93			611
Changes in Operating Assets and Liabilities:
Advisory Fees Receivable	(1,573		)	1,734			(3,748		)	287
Due from Broker	1,554			1,010			(63		)	(1,518		)
Restricted Cash	—			—			(1		)	—
Prepaid Expenses and Other Assets	227			(13		)	(566		)	56
Due to Broker	(1,581		)	(1,532		)	45			1,415
Accounts Payable, Accrued Expenses, and Other Liabilities	3,313			3,616			4,392			4,257
Tax Receivable Agreement Payments	—			—			(2,000		)	(2,093		)
Change in Lease Liability	(106		)	(153		)	(212		)	(307		)
Purchases of Investments	(19,906		)	(10,588		)	(53,206		)	(31,423		)
Proceeds from Sale of Investments	19,004			10,742			52,702			31,955
Net Cash Provided by Operating Activities	12,904			13,444			20,168			21,436
INVESTING ACTIVITIES
Purchases of Investments in Deferred Compensation Plan	(40		)	(10		)	(1,459		)	(462		)
Proceeds from Investments in Deferred Compensation Plan	—			—			78			544
Payments to Related Parties	(1		)	(14		)	(48		)	(34		)
Purchase of Property and Equipment	(5		)	(1		)	(5		)	(1		)
Net Cash (Used in)/Provided by Investing Activities	(46		)	(25		)	(1,434		)	47
FINANCING ACTIVITIES
Repurchase and Retirement of Class A Common Stock	(1,017		)	(125		)	(1,684		)	(125		)
Repurchase and Retirement of Class B Unit Options	(71		)	—			(71		)	—
Distributions to Non-Controlling Interests	(10,186		)	(8,933		)	(21,809		)	(22,270		)
Contributions from Non-Controlling Interests	—			45			—			45
Dividends	(368		)	(317		)	(2,140		)	(2,326		)
Net Cash Used in Financing Activities	(11,642		)	(9,330		)	(25,704		)	(24,676		)
NET CHANGE IN CASH	$	1,216		$	4,089		$	(6,970	)	$	(3,193	)
CASH AND CASH EQUIVALENTS - Beginning of Period	$	24,459		$	27,801		$	32,645		$	35,083
Net Change in Cash	1,216			4,089			(6,970		)	(3,193		)
CASH AND CASH EQUIVALENTS - End of Period	$	25,675		$	31,890		$	25,675		$	31,890
Supplementary Cash Flow Information:
In-Kind Distribution to Non-Controlling Interests of Equity Securities, at Fair Value	$	—		$	—		$	—		$	371
Interest Paid	$	—		$	—		$	—		$	26
Income Taxes Paid	$	964		$	993		$	1,833		$	1,733

See accompanying notes to consolidated financial statements.

4

Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements

Note 1—Organization

Pzena Investment Management, Inc. (the “Company”) functions as the sole managing member of its operating company, Pzena Investment Management, LLC (the “operating company”).   As a result, the Company: (i) consolidates the financial results of the operating company and reflects the membership interests that it does not own as a non-controlling interest in its consolidated financial statements; and (ii) recognizes income generated from its economic interest in the operating company’s net income.

The operating company is an investment adviser which is registered under the Investment Advisers Act of 1940 and is headquartered in New York, New York.  As of June 30, 2013, the operating company managed assets in a variety of value-oriented investment strategies across a wide range of market capitalizations in both U.S. and non-U.S. capital markets.

The Company, through its investment in its operating company, has consolidated the results of operations and financial condition of the following entities as of June 30, 2013:

		Operating Company's Ownership at
Legal Entity	Type of Entity (Date of Formation)	June 30, 2013
Pzena Investment Management, Pty	Australian Proprietary Limited Company (12/16/2009)	100.0	%
Pzena Investment Management Special Situations, LLC	Delaware Limited Liability Company (12/01/2010)	99.9	%
Pzena Investment Funds Trust, Pzena Large Cap Value Fund	Massachusetts Trust (11/01/2002)	0.0	%
Pzena International Value Service, a series of Pzena Investment Management International, LLC	Delaware Limited Liability Company (12/22/2003)	0.0	%

Note 2—Significant Accounting Policies

Basis of Presentation:

The consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and related Securities and Exchange Commission (“SEC”) rules and regulations.  The Company’s policy is to consolidate all majority-owned subsidiaries in which it has a controlling financial interest, which includes Pzena Investment Management, Pty and Pzena Investment Management Special Situations, LLC.  The Company also consolidates variable-interest entities (“VIEs”) where the Company is deemed to be the primary beneficiary, which includes Pzena Investment Funds Trust, Pzena Large Cap Value Fund (“Pzena Large Cap Value Fund”) and Pzena International Value Service, a series of Pzena Investment Management International, LLC (“Pzena International Value Fund”).  These majority-owned subsidiaries in which the Company has a controlling financial interest and the VIEs where the Company is deemed to be the primary beneficiary are collectively referred to as “consolidated subsidiaries.”  As required by the Consolidation Topic of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), the Company also consolidates non-variable-interest entities in which it acts or acted as the general partner or managing member.  All of these entities represent or represented private investment partnerships over which the Company exercises or exercised control.  Non-controlling interests recorded on the consolidated financial statements of the Company include the non-controlling interests of the outside investors in each of these entities, as well as those of the operating company.  All significant inter-company transactions and balances have been eliminated.

The operating company is the managing member of Pzena International Value Fund.  As of February 1, 2011, as a result of a shift in the equity ownership of that series on that date, the operating company was considered the primary beneficiary of this series and, as a result, the series was consolidated with the Company as of that date.  At June 30, 2013, Pzena International Value Fund’s $1.2 million in net assets were included in the Company’s consolidated statements of financial condition.

5

Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

Pzena Large Cap Value Fund is a Massachusetts Trust in which a majority of the trustees are members of the executive committee of the operating company.  A majority of the trustees do not hold equity investments in this trust.  Since the holders of the equity investments in this partnership lack a controlling financial interest in it, this entity is deemed to be a VIE.  The Company is considered the primary beneficiary of this VIE.  At June 30, 2013, the Pzena Large Cap Value Fund’s $1.2 million in net assets were included in the Company’s consolidated statements of financial condition.

All of the consolidated investment partnerships are investment companies under the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies.  The Company has retained the specialized accounting for these partnerships pursuant to the Consolidation of Partnerships and Similar Entities Subtopic of the FASB ASC.  Thus, the Company reports these investment partnerships’ investments in Investments, at Fair Value, with net realized and unrealized gains and losses reported in earnings in the consolidated statements of operations.

VIEs that are not consolidated continue to receive investment management services from the Company, and are vehicles through which the Company offers its global value and/or international (ex-U.S.) value strategies.  The total net assets of these VIEs was approximately $148.0 million and $150.9 million at June 30, 2013 and December 31, 2012, respectively.  Neither the Company nor the operating company were exposed to losses as a result of its involvement with these entities because they had no direct investment in them.

The Company records in its own equity its pro-rata share of transactions that impact the operating company’s net equity, including unit and option issuances, repurchases, and retirements.  The operating company’s pro-rata share of such transactions are recorded as adjustments to additional paid-in capital or non-controlling interests, as applicable, on the consolidated statements of financial position.

Management’s Use of Estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the period.  Actual results could differ from those estimates.

Fair Values of Financial Instruments:

The carrying amounts of all financial instruments in the consolidated statements of financial condition are presented at their fair value.

Revenue Recognition:

Revenue, comprised of advisory fee income, is recognized over the period in which advisory services are provided.  Advisory fee income includes management fees that are calculated based on percentages of assets under management (“AUM”), generally billed quarterly, either in arrears or advance, depending on their contractual terms.  Advisory fee income also includes performance fees that may be earned by the Company depending on the investment return of the assets under management.  Performance fee arrangements generally entitle the Company to participate, on a fixed-percentage basis, in any returns generated in excess of an agreed-upon benchmark.  The Company’s participation percentage in such return differentials is then multiplied by AUM to determine the performance fees earned.   In general, returns are calculated on an annualized basis over the contract’s measurement period, which usually extends to three years.  Performance fees are generally payable annually.  Following the preferred method identified in the Revenue Recognition Topic of the FASB ASC, such performance fee income is recorded at the conclusion of the contractual performance period, when all contingencies are resolved.  For each of the three and six months ended June 30, 2013, the Company recognized approximately $0.1 million in performance fee income.  The Company did not recognize any performance fee income for the three months ended June 30, 2012. Approximately $0.3 million in such fees were recognized for the six months ended June 30, 2012.

Cash and Cash Equivalents:

At June 30, 2013 and December 31, 2012, Cash and Cash Equivalents was $25.7 million and $32.6 million, respectively.  The Company considers all money market funds and highly-liquid debt instruments with an original maturity of three months or less at the time of purchase to be cash equivalents.  The Company maintains its cash in bank deposits and other accounts whose balances often exceed federally insured limits.

6

Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

Interest on cash and cash equivalents is recorded as interest income on an accrual basis in the consolidated statements of operations.

Restricted Cash:

The Company maintained compensating balances of $1.0 million at June 30, 2013 and December 31, 2012 as collateral for a letter of credit issued by a third party in lieu of a cash security deposit, as required by the Company’s lease for its New York office space.  Such amounts are recorded in Restricted Cash in the consolidated statements of financial condition.

Due to/from Broker:

Due to/from Broker consists primarily of amounts payable/receivable for unsettled securities transactions held/initiated at the clearing brokers of the Company’s consolidated subsidiaries.

Investments, at Fair Value:

Investments, at Fair Value represents the securities held by the Company and its consolidated subsidiaries, as well as investments in mutual funds.  The Company’s investments in third-party mutual funds are held to satisfy the Company’s obligations under its deferred compensation program.  Dividends associated with the investments of the Company’s consolidated subsidiaries are recorded as dividend income on an ex-dividend basis in the consolidated statement of operations.

All such investments are recorded at fair value, with net realized and unrealized gains and losses reported in earnings in the consolidated statements of operations.

The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.  The Fair Value Measurements and Disclosures Topic of the FASB ASC also establishes a framework for measuring fair value and a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability.  Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation hierarchy contains three levels: (i) valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets (Level 1); (ii) valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets, and other observable inputs directly or indirectly related to the asset or liability being measured (Level 2); and (iii) valuation inputs are unobservable and significant to the fair value measurement (Level 3).

The Company’s fair value measurements relate to its consolidated investments in equity securities, which are exchange-traded securities with quoted prices in active markets, and its investments in mutual funds.  The fair value measurements of the equity securities and investments in mutual funds have been classified as Level 1.

The following table presents these instruments’ fair value at June 30, 2013:

	Level 1		Level 2		Level 3
	(in thousands)
Assets:
Equity Securities	$	3,765	$	—	$	—
Investments in Mutual Funds	4,558		—		—
Total Fair Value	$	8,323	$	—	$	—

7

Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

The following table presents these instruments’ fair value at December 31, 2012:

	Level 1		Level 2		Level 3
	(in thousands)
Assets:
Equity Securities	$	2,225	$	—	$	—
Investments in Mutual Funds	2,945		—		—
Total Fair Value	$	5,170	$	—	$	—

Securities Valuation:

Investments in equity securities for which market quotations are available are valued at the last reported price or closing price on the primary market or exchange on which they trade.  If no reported equity sales occurred on the valuation date, equity investments are valued at the bid price.  Investments in mutual funds are valued at the closing net asset value per share of the fund on the day of valuation.  Transactions are recorded on a trade date basis.

The net realized gain or loss on sales of securities and investments in mutual funds is determined on a specific identification basis and is included in Net Realized and Unrealized Gain/(Loss) from Investments in the consolidated statements of operations.

Concentrations of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, amounts due from brokers, and advisory fees receivable.  The Company maintains its cash and cash equivalents in bank deposits and other accounts whose balances often exceed federally insured limits.

The concentration of credit risk with respect to advisory fees receivable is generally limited due to the short payment terms extended to clients by the Company.  On a periodic basis, the Company evaluates its advisory fees receivable and establishes an allowance for doubtful accounts, if necessary, based on a history of past write-offs and collections and current credit conditions.  At June 30, 2013 and December 31, 2012, no allowance for doubtful accounts was deemed necessary.

Property and Equipment:

Property and equipment is carried at cost, less accumulated depreciation and amortization.  Depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets, which range from three to seven years.  Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvements or the remaining lease term.

Business Segments:

The Company views its operations as comprising one operating segment.

Income Taxes:

The Company is a “C” corporation under the Internal Revenue Code, and thus liable for federal, state, and local taxes on the income derived from its economic interest in its operating company.  The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes.  It has not made a provision for federal or state income taxes because it is the individual responsibility of each of the operating company’s members (including the Company) to separately report their proportionate share of the operating company’s taxable income or loss.  Similarly, the income of the Company’s consolidated subsidiaries is not subject to income taxes, since it is allocated to each partnership’s individual partners.  The operating company has made a provision for New York City Unincorporated Business Tax (“UBT”).

The Company and its consolidated subsidiaries account for all federal, state, and local taxation pursuant to the asset and liability method, which requires deferred income tax assets and liabilities to be recorded for temporary differences between the carrying amount and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based

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Unaudited Notes to Consolidated Financial Statements (Continued)

on enacted tax laws and rates applicable to the periods in which the temporary differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount more likely than not to be realized.  At June 30, 2013, the Company had a $58.2 million valuation allowance against deferred tax assets recorded as part of the Company’s initial public offering and the subsequent exchanges of Class B units for shares of its Class A common stock.  At December 31, 2012, the Company had a $59.9 million valuation allowance against these deferred tax assets.  The income tax expense, or benefit, is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities. The Company records its deferred tax liabilities as a component of other liabilities in the consolidated statements of financial condition.

Foreign Currency:

Investment securities and other assets and liabilities denominated in foreign currencies are remeasured into U.S. dollar amounts at the date of valuation.  Purchases and sales of investment securities, and income and expense items denominated in foreign currencies, are remeasured into U.S. dollar amounts on the respective dates of such transactions.

The Company does not isolate the portion of the results of its operations resulting from the impact of fluctuations in foreign exchange rates on its non-U.S. investments.  Such fluctuations are included in Net Realized and Unrealized Gain/(Loss) from Investments in the consolidated statements of operations.

Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Company’s books and the U.S. dollar equivalent of the amounts actually received or paid.  Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities resulting from changes in exchange rates.

The functional currency of the Company is the United States Dollar.  The functional currency of the Company’s representative office in Australia is the Australian Dollar.  Assets and liabilities of this office are translated at the spot rate in effect at the applicable reporting date, and the consolidated statements of operations are translated at the average exchange rates in effect during the applicable period.  For the three and six months ended June 30, 2013 and 2012, the Company did not record any accumulated other comprehensive income.

Note 3—Compensation and Benefits

Compensation and benefits expense to employees and members is comprised of the following:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)
Cash Compensation and Other Benefits	$	7,689	$	7,347	$	16,077	$	14,834
Non-Cash Compensation	1,225		665		2,445		1,351
Total Compensation and Benefits Expense	$	8,914	$	8,012	$	18,522	$	16,185

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Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

All non-cash compensation awards granted have varying vesting schedules and are issued at prices equal to the assessed fair market value at the time of issuance, as discussed below.  For the three months ended June 30, 2013 and 2012, the operating company did not grant any non-cash compensation awards. Details of restricted Class B units and restricted shares of Class A common stock awarded during the six months ended June 30, 2013 and 2012 are as follows:

	For the Six Months Ended June 30,			For the Six Months Ended June 30,
	2013			2012
	Amount	Fair Value1		Amount	Fair Value1
Restricted Class B Units	18,517	$	5.40	53,116	$	4.33
Restricted Shares of Class A Common Stock	100,000	$	4.41	—	$	—

1 Represents the grant date estimated fair value per share or unit.

Pursuant to the Pzena Investment Management, LLC Amended and Restated 2006 Equity Incentive Plan (“the 2006 Equity Incentive Plan”), the operating company issues restricted units, phantom Class B units and options to purchase units in our operating company.  Under the Pzena Investment Management, Inc. 2007 Equity Incentive Plan (“the 2007 Equity Incentive Plan”), the Company issued shares of restricted Class A common stock and options to acquire shares of Class A common stock.

Under the Pzena Investment Management, LLC Amended and Restated Bonus Plan (the “Bonus Plan”), eligible employees whose cash compensation is in excess of certain thresholds have a portion of that excess mandatorily deferred.  These deferred amounts may be invested, at the employee’s discretion, in certain third-party mutual funds, phantom operating company Class B units, or money market funds.  Amounts deferred in any calendar year reduce that year’s cash compensation expense and are both amortized and vest ratably over a four-year period commencing the following year.  As of June 30, 2013 and December 31, 2012, the liability associated with deferred compensation investment accounts was $1.0 million and $1.3 million, respectively.

For the three months ended June 30, 2013 and 2012, the Company recognized approximately $1.2 million and $0.7 million, respectively, in compensation and benefits expense associated with the amortization of all unvested operating company Class B units, option grants, and operating company phantom Class B units issued under the 2006 Equity Incentive Plan; restricted Class A common stock issued under the 2007 Equity Incentive Plan; and all unvested deferred compensation awards associated with the Bonus Plan. For the six months ended June 30, 2013 and 2012, the Company recognized approximately $2.4 million and $1.4 million, respectively, in such compensation and benefits expense.

Pursuant to the Pzena Investment Management, Inc. Non-Employee Director Deferred Compensation Plan (the “Director Plan”), non-employee directors may elect to have all or part of the compensation otherwise payable to the director in cash, deferred in the form of phantom shares of Class A common stock of the company.  Elections to defer compensation under the Director Plan are made on a year-to-year basis.  Distributions under the Director Plan shall be made in a single distribution of shares of Class A common stock at such time as elected by the participant when the deferral was made.  Since inception of the Director Plan in 2009, the Company’s directors have elected to defer 100% of their compensation in the form of phantom shares of Class A common stock.  Amounts deferred in any calendar year are amortized over the calendar year and reflected as General and Administrative Expense.  As of June 30, 2013 and December 31, 2012, there were 203,052 and 147,500 phantom shares of Class A common stock outstanding, respectively.  There have been no distributions made under the Director Plan to date.

The Company issues to certain of its employees delayed-vesting cash awards.  For the three and six months ended June 30, 2013 and 2012no such awards were granted.  Delayed-vesting cash awards have varying vesting schedules with $1.0 million to be paid at the end of 2013 and the remaining $0.5 million to be paid at the end of 2014.

As of June 30, 2013 and December 31, 2012, the Company had approximately $17.0 million and $17.9 million, respectively, in unrecorded compensation expense related to unvested operating company phantom Class B units issued pursuant to its Bonus Plan; operating company Class B units, option grants, and operating company phantom Class B units issued under the 2006 Equity Incentive Plan; and restricted Class A common stock issued under the 2007 Equity Incentive Plan.

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Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

Note 4 – Employee Benefit Plans

During 2011, the operating company implemented a Profit Sharing and Savings Plan for the benefit of substantially all employees.  The Profit Sharing and Savings Plan is a defined contribution profit sharing plan with a 401(k) deferral component.  All full-time employees and certain part-time employees who have met the age and length of service requirements are eligible to participate in the plan.  The plan allows participating employees to make elective deferrals of compensation up to the annual limits which are set by law.  The plan provides for a discretionary annual contribution by the operating company which is determined by a formula based on the salaries of eligible employees as defined by the plan.  For each of the three months ended June 30, 2013 and 2012, the expense recognized in connection with this plan was $0.2 million. For each of the six months ended June 30, 2013 and 2012, the expense recognized in connection with this plan was $0.4 million.

Note 5—Earnings per Share

Basic earnings per share is computed by dividing the Company’s net income attributable to its common stockholders by the weighted average number of shares outstanding during the reporting period.  For the three and six months ended June 30, 2013 and 2012,  the Company’s basic earnings per share was determined as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands, except share and per share amounts)
Net Income for Basic Earnings per Share	$	1,266	$	614	$	2,435	$	1,621
Basic Weighted-Average Shares Outstanding	12,315,065		10,565,406		11,793,938		10,570,247
Basic Earnings per Share	$	0.10	$	0.06	$	0.21	$	0.15

Diluted earnings per share adjusts this calculation to reflect the impact of all outstanding operating company membership units, phantom operating company Class B units, phantom Class A common stock, outstanding operating company Class B unit options, options to purchase Class A common stock, and restricted Class A common stock, to the extent they would have a dilutive effect on net income per share for the reporting period.  Net income for diluted earnings per share generally assumes all outstanding operating company membership units are converted into Company stock at the beginning of the reporting period and the resulting change to Company net income associated with its increased interest in the operating company is taxed at the Company’s effective tax rate, exclusive of adjustments associated with both the valuation allowance and the liability to selling and converting shareholders.

For the three and six months ended June 30, 2013 and 2012, the Company’s diluted net income was determined as follows: 

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)
Net Income Attributable to Non-Controlling Interests of Pzena Investment Management, LLC	$	8,715	$	6,508	$	16,829	$	14,717
Less: Assumed Corporate Income Taxes	3,623		2,789		6,996		6,306
Assumed After-Tax Income of Pzena Investment Management, LLC	5,092		3,719		9,833		8,411
Net Income of Pzena Investment Management, Inc.	1,266		614		2,435		1,621
Diluted Net Income 1	$	6,358	$	4,333	$	12,268	$	10,032

^{1 Since the assumed incremental income results in an increase in per share income for the three months ended June 30, 2012, the assumed effects of the conversion of operating company Class B units, options to purchase operating company units, options to purchase Class A common stock, and phantom operating company units are excluded from the the calculation of diluted income per share.} 

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Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

Under the two-class method of computing diluted earnings per share, diluted earnings per share is calculated by dividing net income for diluted earnings per share by the weighted average number of common shares outstanding during the period, plus the dilutive effect of any potential common shares outstanding during the period using the more dilutive of the treasury method or two-class method.  The two-class method includes an earnings allocation formula that determines earnings per share for each participating security according to dividends declared and undistributed earnings for the period.  The Company’s net income for diluted earnings per share is reduced by the amount allocated to participating restricted Class B units for purposes of calculating earnings per share.  Dividend equivalent distributions paid per share on the operating company’s unvested restricted Class B units are equal to the dividends paid per Company Class A common stock.

For the three and six months ended June 30, 2013 and 2012, the Company’s diluted earnings per share were determined as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands, except share and per share amounts)
Diluted Net Income Allocated to:
Class A Common Stock	$	6,343	$	614	$	12,239	$	9,994
Participating Class B Restricted Units	15		—		29		38
Total Diluted Net Income Attributable to Shareholders	$	6,358	$	614	$	12,268	$	10,032
Basic Weighted-Average Shares Outstanding	12,315,065		10,565,406		11,793,938		10,570,247
Dilutive Effect of Operating Company B Units	52,190,656		—		52,770,426		54,010,518
Dilutive Effect of Options 1	637,208		—		630,821		463,088
Dilutive Effect of Phantom Operating Company Class B Units & Phantom Shares of Class A Common Stock	1,232,905		—		1,174,261		105,987
Dilutive Effect of Restricted Shares of Class A Common Stock 2	29,663		—		23,494		—
Dilutive Weighted-Average Shares Outstanding	66,405,497		10,565,406		66,392,940		65,149,840
Add: Participating Restricted Operating Company Class B Units 3	157,326		—		157,326		245,487
Total Dilutive Weighted-Average Shares Outstanding	66,562,823		10,565,406		66,550,266		65,395,327
Diluted Earnings per Share	$	0.10	$	0.06	$	0.18	$	0.15

^{1 Represents the dilutive effect of options to purchase operating company Class B units and Company Class A common stock.} 

^{2 Certain restricted shares of Class A common stock granted to employees are not entitled to dividend or dividend equivalent payments until they are vested and are therefore non-participating securities and are not included in the computation of basic earnings per share. They are included in the computation of diluted earnings per share when the effect is dilutive using the treasury stock method.} 

^{3 Restricted Class B Units granted to employees have nonforfeitable rights to dividend equivalent distributions and therefore participate fully in the results of the operating company's operations from the date they are granted. They are included in the computation of diluted earnings per share using the two-class method for participating securities.} 

Approximately 1.2 million options to purchase Class B units and 1.0 million options to purchase Company Class A common stock were excluded from the calculation of diluted net income per share for each of the three and six months ended June 30, 2013, as their inclusion would have had an antidilutive effect based on current market prices. Approximately 1.7 million options to purchase Class B units and 1.0 million options to purchased Company Class A common stock were excluded from the calculation of diluted net income for each of the three and six months ended June 30, 2012, as their inclusion would have had an antidilutive effect for the respective periods based on market prices.

Note 6—Shareholders’ Equity

The Company functions as the sole managing member of the operating company.  As a result, the Company: (i) consolidates the financial results of the operating company and reflects the membership interest in it that it does not own as

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Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

a non-controlling interest in its consolidated financial statements; and (ii) recognizes income generated from its economic interest in the operating company’s net income.  Class A and Class B units of the operating company have the same economic rights per unit.  As of June 30, 2013, the holders of Class A common stock (through the Company) and the holders of Class B units of the operating company held approximately 18.9% and 81.1%, respectively, of the economic interests in the operations of the business. As of December 31, 2012, the holders of Class A common stock (through the Company) and the holders of Class B units of the operating company held approximately 17.2% and 82.8%, respectively, of the economic interests in the operations of the business.

Each Class B unit of the operating company has a corresponding share of the Company’s Class B common stock, par value $0.000001 per share.  Each share of the Company’s Class B common stock entitles its holder to five votes, until the first time that the number of shares of Class B common stock outstanding constitutes less than 20% of the number of all shares of the Company’s common stock outstanding.  From this time and thereafter, each share of the Company’s Class B common stock entitles its holder to one vote.  When a Class B unit is exchanged for a share of the Company’s Class A common stock or forfeited, a corresponding share of the Company’s Class B common stock will automatically be redeemed and cancelled.  Conversely, to the extent that the Company causes the operating company to issue additional Class B units to employees pursuant to its equity incentive plan, these additional holders of Class B units would be entitled to receive a corresponding number of shares of the Company’s Class B common stock (including if the Class B units awarded are subject to vesting).

All holders of the Company’s Class B common stock have entered into a stockholders’ agreement, pursuant to which they agreed to vote all shares of Class B common stock then held by them, and acquired in the future, together on all matters submitted to a vote of the common stockholders.

The outstanding shares of the Company’s Class A common stock represent 100% of the rights of the holders of all classes of the Company’s capital stock to receive distributions, except that holders of Class B common stock will have the right to receive the class’s par value upon the Company’s liquidation, dissolution or winding up.

Pursuant to the operating agreement of the operating company, each vested Class B unit is exchangeable for a share of the Company’s Class A common stock, subject to certain exchange timing and volume limitations.

On March 20, 2013, and August 31, 2012, certain of the operating company’s members exchanged an aggregate of 1,328,334 and 722,521, respectively, of their Class B units for an equivalent number of shares of Company Class A common stock.  These acquisitions of additional operating company membership interests were treated as reorganizations of entities under common control as required by the Business Combinations Topic of the FASB ASC.

On April 30, 2013, the Company repurchased and retired 55,000 options to purchase Class B units.

The Company’s current share repurchase program was announced on April 24, 2012.  The Board of Directors authorized the Company to repurchase an aggregate of $10 million of the Company’s outstanding Class A common stock and the operating company’s Class B units on the open market and in private transactions in accordance with applicable securities laws.  The timing, number and value of common shares and units repurchased are subject to the Company’s discretion.  The Company’s share repurchase program is not subject to an expiration date and may be suspended, discontinued, or modified at any time, for any reason.

During the three months ended June 30, 2013 and 2012, the Company purchased and retired 165,562 and 28,454 shares of Class A common stock, respectively, under the current repurchase authorization at an average price per share of $6.14 and $4.39, respectively.   During the six months ended June 30, 2013 and 2012, the Company purchased and retired 275,097 and 28,454 shares of Class A common stock, respectively, under the current repurchase authorization at an average price per share of $6.12 and $4.39, respectively.   The Company records the repurchase of shares and units at cost based on the trade date of the transaction.

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Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

Note 7—Non-Controlling Interests

Net Income Attributable to Non-Controlling Interests in the operations of the Company’s operating company and consolidated subsidiaries is comprised of the following:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2013		2012			2013		2012
	(in thousands)
Non-Controlling Interests of Pzena Investment Management, LLC	$	8,715	$	6,508		$	16,829	$	14,717
Non-Controlling Interests of Consolidated Investment Partnerships	311		(116		)	719		353
Net Income Attributable to Non-Controlling Interests	$	9,026	$	6,392		$	17,548	$	15,070

Distributions to non-controlling interests represent tax allocations and dividend equivalents paid to the members of the operating company, as well as withdrawals made by the Company’s consolidated subsidiaries. 

Note 8—Investments, at Fair Value

Investments, at Fair Value consisted of the following at June 30, 2013:

	Cost		Unrealized Gain/(Loss)		Fair Value
	(in thousands)
Equity Securities	$	3,397	$	368	$	3,765
Investments in Mutual Funds	3,983		575		4,558
Total	$	7,380	$	943	$	8,323

Investments, at Fair Value consisted of the following at December 31, 2012:

	Cost		Unrealized Gain/(Loss)		Fair Value
	(in thousands)
Equity Securities	$	1,988	$	237	$	2,225
Investments in Mutual Funds	2,561		384		2,945
Total	$	4,549	$	621	$	5,170

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Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

Note 9—Property and Equipment

Property and Equipment, Net of Accumulated Depreciation is comprised of the following:

	As of
	June 30, 2013			December 31, 2012
	(in thousands)
Leasehold Improvements	$	1,219		$	1,219
Computer Hardware	987			982
Furniture and Fixtures	788			788
Office Equipment	271			271
Computer Software	214			214
Total	3,479			3,474
Less: Accumulated Depreciation and Amortization	(2,772		)	(2,695		)
Total	$	707		$	779

Depreciation is included in general and administrative expense and totaled approximately $0.1 million for each of the three and six months ended June 30, 2013 and 2012.

Note 10—Related Party Transactions

For the three months ended June 30, 2013 and 2012, the Company earned $0.3 million and $0.4 million, respectively, in investment advisory fees from unconsolidated VIEs which receive investment management services from the Company.  For the six months ended June 30, 2013 and 2012, the Company earned $0.7 million and $0.8 million, respectively, in such fees. The Company is not the primary beneficiary of these VIEs.

At both June 30, 2013 and December 31, 2012, the Company had approximately $0.1 million remaining of advances to an international investment company for organization and start-up costs, which are included in Receivable from Related Parties on the consolidated statements of financial condition.  The Company is the sponsor and investment manager of this entity.

At June 30, 2013 and December 31, 2012, Receivable from Related Parties included approximately $0.1 million of loans to employees.

The operating company manages the personal funds of certain of the Company’s employees, including the CEO, its two Presidents, and its two Executive Vice Presidents.  The operating company also manages accounts beneficially owned by a private fund in which certain of the Company’s executive officers invest.  Investments by employees in individual accounts are permitted only at the discretion of the executive committee of the operating company, but are generally not subject to the same minimum investment levels that are required of outside investors.  The operating company also manages the personal funds of some of its employees’ family members.  Pursuant to the respective investment management agreements, the operating company waives or reduces its regular advisory fees for these accounts and personal funds.   In addition, the operating company pays custody and administrative fees for certain of these accounts and personal funds in order to incubate products or preserve performance history.  The aggregate value of the fees that the Company waived related to the Company’s executive officers, other employees, and family members, was approximately $0.1 million for each of the three months ended June 30, 2013 and 2012.  For each of the six months ended June 30, 2013 and 2012, the Company waived $0.2 million of such fees. The aggregate value of the custody and administrative fees paid related to the Company’s executive offers, other employees, and family members was less than $0.1 million for each of the three months ended June 30, 2013 and 2012. The Company paid approximately $0.1 million of such fees for the six months ended June 30, 2013 and 2012.

Note 11—Commitments and Contingencies

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Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

In the normal course of business, the Company enters into agreements that include indemnities in favor of third parties, such as engagement letters with advisors and consultants. In certain cases, the Company may have recourse against third parties with respect to these indemnities. The Company maintains insurance policies that may provide coverage against certain claims under these indemnities. The Company has had no claims or payments pursuant to these agreements, and it believes the likelihood of a claim being made is remote. Utilizing the methodology in the Guarantees Topic of the FASB ASC, the Company’s estimate of the value of such guarantees is de minimis, therefore, no accrual has been made in the consolidated financial statements.

The Company leases office space under a non-cancelable operating lease agreement which expires on October 31, 2015.  The Company reflects minimum lease expense for its headquarters on a straight-line basis over the lease term.  During the year ended December 31, 2011, the Company entered into a noncancelable sublease agreement for certain excess office space associated with its operating lease agreement.  The sublease agreement also expires on October 31, 2015.

Lease expenses were $0.3 million for each of the three months ended June 30, 2013 and 2012 and are included in general and administrative expense. Such expenses totaled $0.7 million for each of the six months ended June 30, 2013 and 2012.

Note 12—Income Taxes

The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes.  Neither it nor the Company’s other consolidated subsidiaries have made a provision for federal or state income taxes because it is the individual responsibility of each of these entities’ members (including the Company) to separately report their proportionate share of the respective entity’s taxable income or loss.  The operating company has made a provision for New York City UBT.  The Company, as a “C” corporation under the Internal Revenue Code, is liable for federal, state and local taxes on the income derived from its economic interest in its operating company, which is net of UBT.  Correspondingly, in its consolidated financial statements, the Company reports both the operating company’s provision for UBT, as well as its provision for federal, state and local corporate taxes.

The components of the income tax expense are as follows:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
	(in thousands)
Current Provision:
Unincorporated Business Taxes 1	$	706		$	578		$	702		$	1,169
Local Corporate Tax	—			—			—			—
State Corporate Tax	—			—			—			—
Federal Corporate Tax	—			—			—			—
Total Current Provision	$	706		$	578		$	702		$	1,169
Deferred Provision:
Unincorporated Business Taxes 1	$	(36	)	$	(27	)	$	22		$	15
Local Corporate Tax	74			62			157			139
State Corporate Tax	129			110			276			246
Federal Corporate Tax	631			365			1,134			834
Total Deferred Provision	$	798		$	510		$	1,589		$	1,234
Change in Valuation Allowance	(556		)	446			(1,781		)	(623		)
Net Adjustment Related to Change in Effective Tax Rate	$	286		$	—		$	286		$	—
Total Income Tax Expense	$	1,234		$	1,534		$	796		$	1,780

^{1 During March 2013, the operating company recognized a $0.6 million tax benefit associated with the amendment of prior year tax returns to change the methodology for state and local receipts.} 

16

Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

The Income Taxes Topic of the FASB ASC establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax return positions in financial statements.  It is the Company’s policy to recognize accrued interest, and penalties associated with uncertain tax positions in Income Tax Expense on the consolidated statement of operations.  For the three and six months ended June 30, 2013 and 2012, no such expenses were recognized.  As of June 30, 2013 and December 31, 2012, no such accruals were recorded.

The Company and the operating company are generally no longer subject to U.S. Federal or state and local income tax examinations by tax authorities for any year prior to 2009.  All tax years subsequent to, and including, 2009 are considered open and subject to examination by tax authorities.

The acquisition of the operating company Class B units, noted below, has allowed the Company to make an election under Section 754 of the Internal Revenue Code (“Section 754”) to step up its tax basis in the net assets acquired.  This step up is deductible for tax purposes over a 15-year period.  Based on the net proceeds of the initial public offering and tax basis of the operating company, this election gave rise to an initial deferred tax asset of approximately $68.7 million.

Pursuant to a tax receivable agreement signed between the members of the operating company and the Company, 85% of the cash savings generated by this election will be distributed to the selling and converting shareholders upon the realization of this benefit.

If the Company exercises its right to terminate the tax receivable agreement early, the Company will be obligated to make an early termination payment to the selling and converting shareholders, based upon the net present value (based upon certain assumptions and deemed events set forth in the tax receivable agreement) of all payments that would be required to be paid by the Company under the tax receivable agreement.  If certain change of control events were to occur, the Company would be obligated to make an early termination payment.

As discussed in Note 6, Shareholders’ Equity, on March 20, 2013 and August 31, 2012, certain of the operating company’s members exchanged an aggregate of 1,328,334 and 722,521, respectively, of their Class B units for an equivalent number of shares of Company Class A common stock.  The Company elected to step up its tax basis in the incremental assets acquired in accordance with Section 754.  Based on the exchange-date fair values of the Company’s common stock and the tax basis of the operating company, this election gave rise to a $5.9 million deferred tax asset and corresponding $5.0 million liability on March 20, 2013 and a $2.2 million deferred tax asset and a corresponding $1.9 million liability on August 31, 2012.   The Company assessed the realizability of the deferred tax asset associated with each of these exchanges and determined that a portion of each of their benefits would go unutilized.  Consequently, the Company established a $5.1 million and $1.9 million valuation allowance on March 20, 2013 and August 31, 2012, respectively, to reduce the deferred tax asset to an amount more likely than not to be realized.  These deferred tax assets remain available to the Company and can be used to reduce taxable income in future years.  The Company similarly reduced the associated liability to selling and converting shareholders by $4.4 million and $1.6 million at March 20, 2013 and August 31, 2012, respectively, to reflect this change in the estimated realization of these assets.  As required by the Income Taxes Topic of the FASB ASC, the Company recorded the effects of these transactions in equity.   

During the three and six months ended June 30, 2013, after giving effect to the exchanges discussed earlier, the Company’s valuation allowance was reduced by approximately $0.6 million and $1.8 million, respectively, due to revised estimates of future taxable income.   Results for the three and six months ended June 30, 2013 also reflects a decrease in the Company's effective tax rate due to a decrease in state and local rates associated with a change in methodology for state and local receipts during 2013. This decrease is reflected as an adjustment to the Company's Section 754 deferred tax asset, valuation allowance, and other deferred tax assets. To reflect these changes in the estimated realization of the asset and its liability for future payments, the Company increased its liability to selling and converting shareholders by $0.2 million and $1.3 million for the three and six months ended June 30, 2013, respectively.  The effects of these changes to the deferred tax asset and liability to selling and converting shareholders were recorded as a component of the income tax expense and other expense, respectively, on the consolidated statements of operations.  

During the three months ended June 30, 2012, the Company’s valuation allowance was increased by approximately $0.4 million, due to revised estimates of future taxable income.  To reflect this change in the estimated realization of the asset and its liability for future payments, the Company decreased its liability to selling and converting shareholders by $0.3 million for the three months ended June 30, 2012.   During the six months ended June 30, 2012, after giving effect to the exchanges discussed earlier, the Company’s valuation allowance was decreased by approximately $0.6 million, due to revised estimates of future taxable income.  To reflect this change in the estimated realization of the asset and its liability for future payments, the Company increased

17

Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

its liability to selling and converting shareholders by $0.7 million for the six months ended June 30, 2012. The effects of these changes to the deferred tax asset and liability to selling and converting shareholders were recorded as a component of the income tax expense and other expense, respectively, on the consolidated statements of operations. 

As of June 30, 2013 and December 31, 2012, the net values of all deferred tax assets were approximately $10.4 million and $9.7 million, respectively.

The change in the Company’s deferred tax assets, net of valuation allowance, for the three and six months ended June 30, 2013 is summarized as follows:

	Section 754			Other			Valuation Allowance			Total
	(in thousands)
Balance at December 31, 2012	$	65,069		$	4,536		$	(59,917	)	$	9,688
Deferred Tax (Expense)/Benefit	(907		)	103			—			(804		)
Unit Exchange	5,935			—			(5,140		)	795
Change in Valuation Allowance	—			—			1,225			1,225
Balance at March 31, 2013	$	70,097		$	4,639		$	(63,832	)	$	10,904
Deferred Tax (Expense)/Benefit	(905		)	103			—			(802		)
Change in Effective Rate	(5,272		)	(105		)	5,091			(286		)
Change in Valuation Allowance	—			—			556			556
Balance at June 30, 2013	$	63,920		$	4,637		$	(58,185	)	$	10,372

The change in the Company’s deferred tax liabilities, which is included in other liabilities on the Company’s consolidated statements of financial condition, for the three and six months ended June 30, 2013, is summarized as follows:

	Total
	(in thousands)
Balance at December 31, 2012	$	(59	)
Deferred Tax Expense	14
Balance at March 31, 2013	$	(45	)
Deferred Tax Expense	5
Balance at June 30, 2013	$	(40	)

The change in the Company’s deferred tax assets, net of valuation allowance, for the three and six months ended June 30, 2012 is summarized as follows:

	Section 754			Other		Valuation Allowance			Total
	(in thousands)
Balance at December 31, 2011	$	66,224		$	3,661	$	(61,050	)	$	8,835
Deferred Tax (Expense)/Benefit	(823		)	158		—			(665		)
Change in Valuation Allowance	—			—		1,069			1,069
Balance at March 31, 2012	$	65,401		$	3,819	$	(59,981	)	$	9,239
Deferred Tax (Expense)/Benefit	(835		)	320		—			(515		)
Change in Valuation Allowance	—			—		(446		)	(446		)
Balance at June 30, 2012	$	64,566		$	4,139	$	(60,427	)	$	8,278

18

Pzena Investment Management, Inc.

Unaudited Notes to Consolidated Financial Statements (Continued)

The change in the Company’s deferred tax liabilities for the three and six months ended June 30, 2012 is summarized as follows:

	Total
	(in thousands)
Balance at December 31, 2011	$	(13	)
Deferred Tax Benefit	(59		)
Balance at March 31, 2012	$	(72	)
Deferred Tax Expense	5
Balance at June 30, 2012	$	(67	)

Note 13—Subsequent Events

The Company evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued.  This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a public-equity investment management firm that utilizes a classic value investment approach across all of our investment strategies.  We currently manage assets in a variety of value-oriented investment strategies across a wide range of market capitalizations in both U.S. and non-U.S. capital markets.  At June 30, 2013, our assets under management, or AUM, was $20.3 billion.  We manage separate accounts on behalf of institutions and high net worth individuals, and act as sub-investment adviser for a variety of SEC-registered mutual funds and non-U.S. funds.

We function as the sole managing member of our operating company, Pzena Investment Management, LLC (the “operating company”).  As a result, we: (i) consolidate the financial results of our operating company with our own, and reflect the membership interest in it that we do not own as a non-controlling interest in our consolidated financial statements; and (ii) recognize income generated from our economic interest in our operating company’s net income.  As of June 30, 2013, the holders of Class A common stock (through the Company) and the holders of Class B units of our operating company held approximately 18.9% and 81.1%, respectively, of the economic interests in the operations of our business.

Non-GAAP Net Income

Our results for the three and six months ended June 30, 2013 and 2012 included recurring adjustments related to the Company’s tax receivable agreement and the associated liability to its selling and converting shareholders.  We believe that these accounting adjustments add a measure of non-operational complexity which partially obscures the underlying performance of our business.  In evaluating our financial condition and results of operations, we also review certain non-GAAP measures of earnings, which exclude these items.  Excluding these adjustments, non-GAAP diluted net income and non-GAAP diluted earnings per share were $6.3 million and $0.09, respectively, for the three months ended June 30, 2013 and $4.5 million and $0.07, respectively, for three months ended June 30, 2012.  Excluding these adjustments, non-GAAP diluted net income and non-GAAP diluted earnings per share were $12.0 million and $0.18, respectively, for the six months ended June 30, 2013 and $10.1 million and $0.15, respectively, for six months ended June 30, 2012. GAAP and non-GAAP net income for diluted earnings per share generally assumes all operating company membership units are converted into Company stock at the beginning of the reporting period, and the resulting change to our net income associated with our increased interest in the operating company is taxed at our effective tax rate, exclusive of other adjustments, and the adjustments related to our tax receivable agreement and the associated liability to selling and converting shareholders.  Our effective tax rate, exclusive of these adjustments, was approximately 41.6% for each of the three and six months ended June 30, 2013 and 42.8% for each of the three and six months ended June 30, 2012.  See “Operating Results - Income Tax Expense” below.

We use these non-GAAP measures to assess the strength of the underlying operations of the business. We believe that these adjustments, and the non-GAAP measures derived from them, provide information to better analyze our operations between periods, and over time. We also use non-GAAP net income as one factor in determining the amount of dividends we pay.  See “Dividend Policy” below.  Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

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A reconciliation of the non-GAAP measures to the most comparable GAAP measures is included below:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2013			2012		2013			2012
	(In thousands, except share and per share data)
GAAP Net Income	$	1,266		$	614	$	2,435		$	1,621
Net Effect of Tax Receivable Agreement	(41		)	131		(227		)	35
Non-GAAP Net Income	$	1,225		$	745	$	2,208		$	1,656
GAAP Net Income Attributable to Non-Controlling Interest of Pzena Investment Management, LLC	$	8,715		$	6,508	$	16,829		$	14,717
Less: Assumed Corporate Income Taxes	3,623			2,789		6,996			6,306
Assumed After-Tax Income of Pzena Investment Management, LLC	5,092			3,719		9,833			8,411
Non-GAAP Net Income of Pzena Investment Management, Inc.	1,225			745		2,208			1,656
Non-GAAP Diluted Net Income	$	6,317		$	4,464	$	12,041		$	10,067
Non-GAAP Diluted Earnings Per Share Attributable to Pzena Investment Management, Inc. Common Stockholders:
Non-GAAP Net Income for Diluted Earnings per Share	$	6,317		$	4,464	$	12,041		$	10,067
Non-GAAP Diluted Earnings Per Share	$	0.09		$	0.07	$	0.18		$	0.15
Non-GAAP Diluted Weighted-Average Shares Outstanding	66,562,823			65,426,774		66,550,266			65,395,327

Revenue

We generate revenue primarily from management fees and performance fees, which we collectively refer to as our advisory fees, by managing assets on behalf of institutional accounts and for retail clients, which are generally open-end mutual funds catering primarily to retail investors.  Our advisory fee income is recognized over the period in which investment management services are provided.  Following the preferred method identified in the Revenue Recognition Topic of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), income from performance fees is recorded at the conclusion of the contractual performance period, when all contingencies are resolved.

Our advisory fees are primarily driven by the level of our AUM.  Our AUM increases or decreases with the net inflows or outflows of funds into our various investment strategies and with the investment performance thereof.  In order to increase our AUM and expand our business, we must develop and market investment strategies that suit the investment needs of our target clients, and provide attractive returns over the long term.  The value and composition of our AUM, and our ability to continue to attract clients, will depend on a variety of factors including, among other things:

• our ability to educate our target clients about our classic value investment strategies and provide them with exceptional client service;

• the relative investment performance of our investment strategies, as compared to competing products and market indices;

• competitive conditions in the investment management and broader financial services sectors;

• general economic conditions;

• investor sentiment and confidence; and

• our decision to close strategies when we deem it to be in the best interests of our clients.

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For our institutional accounts, we are paid fees according to a schedule, which varies by investment strategy.  The substantial majority of these accounts pay us management fees pursuant to a schedule in which the rate we earn on the AUM declines as the amount of AUM increases.

Pursuant to our sub-investment advisory agreements with our retail clients, we are generally paid a management fee according to a schedule in which the rate we earn on the AUM declines as the amount of AUM increases.  Certain of these funds pay us fixed-rate management fees.  Due to the substantially larger account size of certain of these accounts, the average advisory fees we earn on them, as a percentage of AUM, are lower than the advisory fees we earn on our institutional accounts.

Certain of our clients pay us fees according to the performance of their accounts relative to certain agreed-upon benchmarks, which results in a lower base fee, but allows us to earn higher fees if the relevant investment strategy outperforms the agreed-upon benchmark.

The majority of advisory fees we earn on institutional accounts is based on the value of our AUM at a specific date on a quarterly basis, either in arrears or advance.  Advisory fees on certain of our institutional accounts, and with respect to all of our retail accounts, are calculated based on the average of the monthly or daily market value.  Advisory fees are also generally adjusted for any cash flows into or out of a portfolio, where the cash flow represents greater than 10% of the value of the portfolio.  While a specific group of accounts may use the same fee rate, the method used to calculate the fee according to the fee rate schedule may differ as described above.

Our advisory fees may fluctuate based on a number of factors, including the following:

• changes in AUM due to appreciation or depreciation of our investment portfolios, and the levels of the contribution and withdrawal of assets by new and existing clients;

• distribution of AUM among our investment strategies, which have differing fee schedules;

• distribution of AUM between institutional accounts and retail accounts, for which we generally earn lower overall advisory fees; and

• the level of our performance with respect to accounts on which we are paid performance fees.

Expenses

Our expenses consist primarily of Compensation and Benefits Expense, as well as General and Administrative Expense.  Our largest expense is Compensation and Benefits, which includes the salaries, bonuses, equity-based compensation, and related benefits and payroll costs attributable to our employee members and employees.  Compensation and benefits packages are benchmarked against relevant industry and geographic peer groups in order to attract and retain qualified personnel.  General and Administrative Expense includes office rent and other expenses, professional and outside services fees, depreciation, and the costs associated with operating and maintaining our research, trading, and portfolio accounting systems.  Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the overall size and scale of our business operations.

We incur additional expenses associated with being a public company for, among other things, director and officer insurance, director fees, SEC reporting and compliance (including Sarbanes-Oxley and Dodd-Frank compliance), professional fees, transfer agent fees, and other similar expenses.  These additional expenses have and will continue to reduce our net income.

Our expenses may fluctuate due to a number of factors, including the following:

• variations in the level of total compensation expense due to, among other things, bonuses, awards of equity to our employees and employee members of our operating company, changes in our employee count and mix, and competitive factors; and

• general and administrative expenses, such as rent, professional service fees and data-related costs, incurred, as necessary, to run our business.

Other Income/(Expense)

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Other Income/(Expense) is derived primarily from investment income or loss arising from our consolidated subsidiaries, income or loss generated by our investments in third-party mutual funds, and interest income generated on our cash balances.  Other Income/(Expense) is also affected by changes in our estimates of the liability due to our selling and converting shareholders associated with payments owed to them under the tax receivable agreement which was executed in connection with our reorganization and initial public offering on October 30, 2007.  As discussed further below under “Tax Receivable Agreement,” this liability represents 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that we realize as a result of the amortization of the increases in tax basis generated from our acquisitions of our operating company’s units from our selling and converting shareholders.  We expect the interest and investment components of Other Income/(Expense), in the aggregate, to fluctuate based on market conditions and the performance of our consolidated investment partnerships and other investments.

Non-Controlling Interests

Our operating company has historically consolidated the results of operations of the private investment partnerships over which we exercise a controlling influence.  We are the sole managing member of our operating company and control its business and affairs and, therefore, consolidate its financial results with ours.  In light of our employees’ and outside investors’ interest in our operating company, we have reflected their membership interests as a non-controlling interest in our consolidated financial statements.  As a result, our income is generated by our economic interest in our operating company’s net income.  As of June 30, 2013, the holders of Class A common stock (through the Company) and the holders of Class B units of the operating company held approximately 18.9% and 81.1%, respectively, of the economic interests in the operations of the business.

Operating Results

Assets Under Management and Flows

As of June 30, 2013, our approximately $20.3 billion of AUM was invested in a variety of value-oriented investment strategies, representing distinct capitalization segments of U.S. and non-U.S. equity markets.  The performance of our largest investment strategies as of June 30, 2013 is further described below.  We follow the same investment process for each of these strategies.  Our investment strategies are distinguished by the market capitalization ranges from which we select securities for their portfolios, which we refer to as each strategy’s investment universe, as well as the regions in which we invest and the degree to which we concentrate on a limited number of holdings.  While our investment process includes ongoing review of companies in the investment universes described below, our actual investments may include companies outside of the relevant market capitalization range at the time of our investment.  In addition, the number of holdings typically found in the portfolios of each of our investment strategies may vary, as described below.

The following table indicates the annualized returns, gross and net (which represents annualized returns prior to, and after, payment of advisory fees, respectively), of our six largest investment strategies from their inception to June 30, 2013, and in the five-year, three-year, and one-year periods ended June 30, 2013, as well as the performance of the market index which is most commonly used by our clients to compare the performance of the relevant investment strategy over those time periods.

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	Period Ended June 30, 20131
Investment Strategy (Inception Date)	SinceInception		5 Years		3 Years		1 Year
Large Cap Focused Value (October 2000)
Annualized Gross Returns	6.2	%	8.6	%	18.0	%	32.7	%
Annualized Net Returns	5.7	%	8.1	%	17.5	%	32.1	%
Russell 1000® Value Index	5.4	%	6.7	%	18.5	%	25.3	%
Global Focused Value (January 2004)
Annualized Gross Returns	4.2	%	3.5	%	13.8	%	31.0	%
Annualized Net Returns	3.4	%	2.8	%	13.1	%	30.2	%
MSCI(SM) World Index—Net/U.S.$2	5.6	%	2.7	%	13.7	%	18.6	%
Large Cap Expanded Value (July 2012)
Annualized Gross Returns	33.6	%	—		—		33.6	%
Annualized Net Returns	33.4	%	—		—		33.4	%
Russell 1000® Value Index	25.3	%	—		—		25.3	%
International (ex-U.S) Expanded Value (November 2008)
Annualized Gross Returns	14.5	%	—		12.3	%	28.3	%
Annualized Net Returns	14.2	%	—		12.0	%	27.9	%
MSCI® EAFE Index—Net/U.S.$2	9.5	%	—		10.1	%	18.6	%
Focused Value (January 1996)
Annualized Gross Returns	10.8	%	9.7	%	19.3	%	33.1	%
Annualized Net Returns	9.9	%	9.0	%	18.6	%	32.4	%
Russell 1000® Value Index	8.4	%	6.7	%	18.5	%	25.3	%
Small Cap Focused Value (January 1996)
Annualized Gross Returns	14.1	%	15.5	%	19.0	%	28.4	%
Annualized Net Returns	12.8	%	14.3	%	17.8	%	27.2	%
Russell 2000® Value Index	9.9	%	8.6	%	17.3	%	24.8	%

1 The historical returns of these investment strategies are not necessarily indicative of their future performance, or the future performance of any of our other current or future investment strategies.

2 Net of applicable withholding taxes and presented in U.S. $.

Large Cap Focused Value.  We screen a universe of the 500 largest U.S. listed companies, based on market capitalization, to build a portfolio generally consisting of 30 to 40 stocks. We launched this strategy in October 2000. At June 30, 2013, the Large Cap Focused Value strategy generated a one-year gross return of 32.7%, outperforming its benchmark. The main drivers of this outperformance were our exposure to the financial services and technology sectors, an underweight position in the utilities sector, and the portfolio's housing-related holdings, partially offset by certain holdings in the consumer discretionary and energy sectors.

Global Focused Value.  We screen a universe of the 1,500 largest non U.S. listed companies, based on market capitalization, and the 500 largest U.S. listed companies, based on market capitalization, to build a portfolio generally consisting of 40 to 60 stocks. We launched this strategy in January 2004. At June 30, 2013, the Global Focused Value strategy generated a one-year gross return of 31.0%, outperforming its benchmark.  The portfolio’s top contributors to relative performance were the financial services, industrials, information technology, and materials sectors. This outperformance was partially offset by certain stocks in the energy sector.

Large Cap Expanded Value.  We screen a universe of the 500 largest U.S. listed companies, based on market capitalization, to build a portfolio generally consisting of 50 to 80 stocks. We launched this strategy in July 2012. At June 30,

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2013, the Large Cap Expanded Value strategy generated a one-year gross return of 33.6%, outperforming its benchmark.  This outperformance was driven primarily by the financial services sector, our underweight exposure to the utilities sector and the portfolio’s housing-related holdings, partially offset by certain holdings in the consumer discretionary and energy sectors.

International (ex-U.S.) Expanded Value.  We screen a universe of the 1,500 largest non-U.S. listed companies, based on market capitalization, to build a portfolio generally consisting of 60 to 80 stocks. We launched this strategy in November 2008. At June 30, 2013, the International (ex-U.S.) Expanded Value strategy generated a one-year gross return of 28.3%, outperforming its benchmark. The largest contributors to this outperformance was our stock selection in the industrials, materials, consumer discretionary and financial services sectors, partially offset by our overweight investment exposure to the energy sector.

Focused Value.  We screen a universe of the 1,000 largest U.S. listed companies, based on market capitalization, to build a portfolio generally consisting of 30 to 40 stocks. We launched this strategy in January 1996. At June 30, 2013, the Focused Value strategy generated a one-year gross return of 33.1%, outperforming its benchmark. The main contributors to this outperformance were our exposure to the financial services sector, the portfolio's housing-related holdings, and underweight investment exposure to the utilities sector, partially offset by certain holdings in the consumer discretionary sector.

Small Cap Focused Value.  We screen a universe of U.S. listed companies ranked from the 1,001^st to 3,000^th largest, based on market capitalization, to build a portfolio generally consisting of 40 to 50 stocks. We launched this strategy in January 1996. At June 30, 2013, the Small Cap Focused Value strategy generated a one-year gross return of 28.4%, outperforming its benchmark. A broad number of holdings across a diverse range of industries contributed to this outperformance, specifically certain stocks in the financial services, healthcare, and materials and processing sectors. This outperformance was partially offset by certain stocks in the consumer discretionary sector.

Our earnings and cash flows are heavily dependent upon prevailing financial market conditions.  Significant increases or decreases in the various securities markets, particularly the equities markets, can have a material impact on our results of operations, financial condition, and cash flows.

The change in AUM in our institutional accounts and our retail accounts for the three, six and twelve months ended June 30, 2013 and 2012 is described below.  Inflows are composed solely of the investment of new or additional assets by new or existing clients.  Outflows consist solely of redemptions of assets by existing clients.

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Assets Under Management
($ billions)
	For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Twelve Months Ended June 30,
	2013			2012			2013			2012			2013			2012
Institutional Accounts
Assets
Beginning of Period	$	12.2		$	12.2		$	11.2		$	11.3		$	10.9		$	12.9
Inflows	0.1			0.3			0.5			0.4			0.8			1.4
Outflows	(0.4		)	(0.7		)	(0.9		)	(1.6		)	(2.2		)	(2.5		)
Net Flows	(0.3		)	(0.4		)	(0.4		)	(1.2		)	(1.4		)	(1.1		)
Market Appreciation/(Depreciation)	0.7			(0.9		)	1.8			0.8			3.1			(0.9		)
End of Period	$	12.6		$	10.9		$	12.6		$	10.9		$	12.6		$	10.9
Retail Accounts
Assets
Beginning of Period Assets	$	7.3		$	2.5		$	5.9		$	2.2		$	2.2		$	3.0
Inflows	0.3			0.1			1.1			0.3			4.8			0.7
Outflows	(0.4		)	(0.2		)	(0.6		)	(0.4		)	(1.1		)	(1.3		)
Net Flows	(0.1		)	(0.1		)	0.5			(0.1		)	3.7			(0.6		)
Market Appreciation/(Depreciation)	0.5			(0.2		)	1.3			0.1			1.8			(0.2		)
End of Period	$	7.7		$	2.2		$	7.7		$	2.2		$	7.7		$	2.2
Total
Assets
Beginning of Period	$	19.5		$	14.7		$	17.1		$	13.5		$	13.1		$	15.9
Inflows	0.4			0.4			1.6			0.7			5.6			2.1
Outflows	(0.8		)	(0.9		)	(1.5		)	(2.0		)	(3.3		)	(3.8		)
Net Flows	(0.4		)	(0.5		)	0.1			(1.3		)	2.3			(1.7		)
Market Appreciation/(Depreciation)	1.2			(1.1		)	3.1			0.9			4.9			(1.1		)
End of Period	$	20.3		$	13.1		$	20.3		$	13.1		$	20.3		$	13.1

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The following table describes the allocation of our AUM among our investment strategies, as of June 30, 2013 and 2012:

	AUM at June 30,
Investment Strategy	2013		2012
	(in billions)
U.S. Value Strategies1	$	13.5	$	7.2
Global Value Strategies1	4.6		3.9
Non-U.S. Value Strategies	2.2		2.0
Total	$	20.3	$	13.1

^{1 During 2013, approximately $0.1 billion of previously reported assets under management in U.S. Value Strategies has been reclassified to Global Value Strategies. Historical information has been reclassified for all periods presented.} 

Three Months Ended June 30, 2013 versus June 30, 2012

At June 30, 2013, we managed $12.6 billion in institutional accounts and $7.7 billion in retail accounts, for a total of $20.3 billion in assets.  For the three months ended June 30, 2013, we experienced market appreciation of $1.2 billion and total gross inflows of $0.4 billion, which were partially offset by total gross outflows of $0.8 billion.  Assets in institutional accounts increased by $0.4 billion, or 3.3%, from $12.2 billion at March 31, 2013 due to $0.7 billion in market appreciation and $0.1 billion in gross inflows, partially offset by $0.4 billion in gross outflows. Assets in retail accounts increased by $0.4 billion, or 5.5%, from $7.3 billion at March 31, 2013 due to $0.5 billion in market appreciation and $0.3 billion in gross inflows, partially offset by $0.4 billion in gross outflows.

At June 30, 2012, we managed $10.9 billion in institutional accounts and $2.2 billion in retail accounts, for a total of $13.1 billion in assets. For the three months ended June 30, 2012, we experienced market depreciation of $1.1 billion and total gross outflows of $0.9 billion, which were partially offset by total gross inflows of $0.4 billion. For the three months ended June 30, 2012 assets in institutional accounts decreased by $1.3 billion, or 10.7%, due to $0.9 billion in market depreciation and $0.7 billion in gross outflows, partially offset by $0.3 billion in gross inflows. For the three months ended June 30, 2012, assets in retail accounts decreased by $0.3 billion, or 12.0%, as a result of $0.2 billion in market depreciation and $0.2 billion in gross outflows, partially offset by $0.1 billion in gross inflows.

Six Months Ended June 30, 2013 versus June 30, 2012

For the six months ended June 30, 2013, we experienced market appreciation of $3.1 billion and $1.6 billion in gross inflows which were partially offset by $1.5 billion in gross outflows. For the six months ended June 30, 2013, assets in institutional accounts increased by $1.4 billion, or 12.5%, from $11.2 billion at December 31, 2012 due to $1.8 billion in market appreciation and $0.5 billion in gross inflows, partially offset by $0.9 billion in gross outflows. For the six months ended June 30, 2013, assets in retail accounts increased $1.8 billion, or 30.5%, from $5.9 billion at December 31, 2012 due to $1.3 billion in market appreciation and $1.1 billion in gross inflows, partially offset by $0.6 billion in gross outflows.

For the six months ended June 30, 2012, we experienced gross outflows of $2.0 billion, which were partially offset by market appreciation of $0.9 billion and gross inflows of $0.7 billion. For the six months ended June 30, 2012, assets in institutional accounts decreased by $0.4 billion, or 3.5%, due to $1.6 billion in gross outflows partially offset by $0.8 billion in market appreciation and $0.4 billion in gross inflows. Assets in retail accounts remained flat as a result of $0.4 billion in gross outflows, offset by $0.3 billion in gross inflows and $0.1 billion in market appreciation.

Revenues

Our revenues are generally correlated with the levels of our average AUM.  Our average AUM fluctuates based on changes in the market value of accounts advised and managed by us, and on our fund flows.  Since we are long-term fundamental investors, we believe that our investment strategies yield the most benefits, and are best evaluated, over a long-term timeframe.  We believe that our investment strategies are generally evaluated by our clients and our potential future clients based on their relative performance since inception, and the previous one-year, three-year, and five-year periods.  There has typically been a correlation between our strategies’ investment performance and the size and direction of asset flows over the

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long term.  To the extent that our returns for these periods outperform client benchmarks, we would generally anticipate increased asset flows over the long term.  Correspondingly, negative returns relative to client benchmarks could cause existing clients to reduce their exposure to our products, or hinder new client acquisition.

In addition, an increase in average AUM and in revenues typically results in higher operating income and net income, while a decrease in average AUM and in revenues typically results in lower operating income, net income, and operating margins.  We would expect pressure on our operating income, net income and operating margins in the future if average AUM and revenues were to decline.

Our revenue from advisory fees earned on our institutional accounts and our retail accounts for the three and six months ended June 30, 2013 and 2012 is described below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Revenue	2013		2012		2013		2012
	(in thousands)
Institutional Accounts	$	17,411	$	16,019	$	33,951	$	33,369
Retail Accounts	4,721		2,320		9,023		4,738
Total	$	22,132	$	18,339	$	42,974	$	38,107

Three Months Ended June 30, 2013 versus June 30, 2012

Our total revenue increased by $3.8 million, or 20.7%, to $22.1 million for the three months ended June 30, 2013, from $18.3 million for the three months ended June 30, 2012.  This change was driven primarily by an increase in our average AUM.  Total average AUM increased 46.7% to $20.1 billion from $13.7 billion for the three months ended June 30, 2013 and 2012, respectively.  To the extent that we experience further shifts in average AUM, our revenue could be affected.

Our weighted average fees were 0.441% and 0.537% for the three months ended June 30, 2013 and 2012, respectively. This decrease was primarily due to the increase in our average AUM primarily associated with the large inflow representing the Company’s assignment to manage 28% of the Vanguard Windsor Fund as of the beginning of August 2012 and market appreciation.  Our tiered fee schedules typically charge lower rates as account size increases.  

Average assets in institutional accounts increased $1.2 billion to $12.5 billion for the three months ended June 30, 2013, from $11.3 billion for the three months ended June 30, 2012, and had weighted average fees of 0.556% and 0.566% for the three months ended June 30, 2013 and 2012, respectively.  Weighted average fee rates decreased primarily due to the increase in average assets during the three months ended June 30, 2013 associated primarily with market appreciation.  

Average assets in retail accounts increased $5.2 billion to $7.6 billion for the three months ended June 30, 2013, from $2.4 billion for the three months ended June 30, 2012, and had weighted average fees of 0.250% and 0.394% for the three months ended June 30, 2013 and 2012, respectively.  Retail weighted average fee rates decreased due to the increase in average assets under management primarily associated with the large inflow representing the Company’s Vanguard assignment and market appreciation.

Six Months Ended June 30, 2013 versus June 30, 2012

Our total revenue increased by $4.9 million, or 12.8%, to $43.0 million for the six months ended June 30, 2013, from $38.1 million for the six months ended June 30, 2012.  This change was driven primarily by an increase in our average AUM.  Total average AUM increased 33.8% to $18.6 billion from $13.9 billion for the six months ended June 30, 2013 and 2012, respectively.  To the extent that we experience further shifts in average AUM, our revenue could be affected.

Our weighted average fees were 0.463% and 0.548% for the six months ended June 30, 2013 and 2012, respectively. This decrease was primarily due to the increase in our average AUM primarily associated with the large inflow representing the Company’s assignment to manage 28% of the Vanguard Windsor Fund as of the beginning of August 2012 and market appreciation.  Our tiered fee schedules typically charge lower rates as account size increases.  

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Average assets in institutional accounts increased $0.4 billion to $11.9 billion for the six months ended June 30, 2013, from $11.5 billion for the six months ended June 30, 2012, and had weighted average fees of 0.571% and 0.578% for the six months ended June 30, 2013 and 2012, respectively.  Weighted average fee rates decreased primarily due to the increase in average assets during the six months ended June 30, 2013 associated primarily with market appreciation.  

Average assets in retail accounts increased $4.3 billion to $6.7 billion for the six months ended June 30, 2013, from $2.4 billion for the six months ended June 30, 2012, and had weighted average fees of 0.271% and 0.403% for the six months ended June 30, 2013 and 2012, respectively.  Retail weighted average fee rates decreased due to the increase in average assets under management primarily associated with the large inflow representing the Company’s Vanguard assignment and market appreciation.

Expenses

Our operating expense is driven primarily by our compensation costs.  The table below describes the components of our operating expense for the three and six months ended June 30, 2013 and 2012.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)
Cash Compensation and Other Benefits	$	7,689	$	7,347	$	16,077	$	14,834
Other Non-Cash Compensation	1,225		665		2,445		1,351
Total Compensation and Benefits Expense	8,914		8,012		18,522		16,185
General and Administrative Expense	1,943		1,916		3,752		3,619
Total Operating Expenses	$	10,857	$	9,928	$	22,274	$	19,804

Three Months Ended June 30, 2013 versus June 30, 2012

Total operating expense increased by $0.9 million, or 9.4%, to $10.9 million for the three months ended June 30, 2013, from $9.9 million for the three months ended June 30, 2012.  This increase was primarily attributable to our compensation expenses.

Compensation and benefits expense increased by $0.9 million, or 11.3%, to $8.9 million for the three months ended June 30, 2013, from $8.0 million for the three months ended June 30, 2012.  This increase was primarily attributable an increase in discretionary bonus amounts.  The $0.3 million increase in cash compensation is primarily due to an increase in bonus accrual.  The $0.6 million increase in other non-cash compensation is primarily due to amortization associated with previously issued awards.  We would expect non-cash compensation expense in subsequent periods to depend on the size and composition of awards granted under our equity incentive plans.

General and administrative expenses were relatively flat for the three months ended June 30, 2013 from the three months ended June 30, 2012.

Six Months Ended June 30, 2013 versus June 30, 2012

Total operating expense increased by $2.5 million, or 12.5%, to $22.3 million for the six months ended June 30, 2013, from $19.8 million for the six months ended June 30, 2012.  This increase was primarily attributable to our compensation expenses.

Compensation and benefits expense increased by $2.3 million, or 14.4%, to $18.5 million for the six months ended June 30, 2013, from $16.2 million for the six months ended June 30, 2012.  This increase was primarily attributable to an increase in discretionary bonus and cash compensation amounts as well as an expense of $0.6 million associated with severance charges recognized during the three months ended March 31, 2013.  The $1.2 million increase in cash compensation is primarily due to the severance charge recognized during the first quarter of 2013 as well as an increase in salary and headcount.  The $1.1 million increase in other non-cash compensation is primarily due to amortization associated with previously issued awards.  We would

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expect non-cash compensation expense in subsequent periods to depend on the size and composition of awards granted under our equity incentive plans.

Other Income/(Expense)

Three Months Ended June 30, 2013 versus June 30, 2012

Other Income/(Expense) was income of $0.3 million for the three months ended June 30, 2013, and consisted primarily of $0.4 million of net realized and unrealized gains from investments and $0.1 million in interest and dividend income, partially offset by $0.2 million in expense related to adjustments to our liability to our selling and converting shareholders.  Other income/(expense) was income of $0.1 million for the three months ended June 30, 2012, and consisted primarily of $0.3 million of income related to adjustments to our liability to our selling and converting shareholders and $0.1 million in interest and dividend income, partially offset by $0.2 million in net realized and  unrealized losses from investments and $0.1 million in other expense.  As discussed further below, the liability to our selling and converting shareholders represents 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we realize as a result of the amortization of the increases in tax basis generated from our purchase of operating company units from our selling shareholders.

Six Months Ended June 30, 2013 versus June 30, 2012

Other income/(expense) was income of $0.1 million for the six months ended June 30, 2013, and consisted primarily of $1.3 million in net realized and unrealized gains from investments and $0.2 million in interest and dividend income, partially offset by $1.3 million in expense related to adjustments to our liability to our selling and converting shareholders and $0.1 million in other expense.  Other income/(expense) was income of $0.2 million for the six months ended June 30, 2012, and consisted primarily of $0.7 million of net realized and unrealized gains from investments and $0.2 million in interest, dividend and other income.  This was partially offset by $0.7 million in expense related to adjustment to our liability to our selling and converting shareholders.  As discussed further below, the liability to our selling and converting shareholders represents 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we realize as a result of the amortization of the increases in tax basis generated from our purchase of operating company units from our selling shareholders.

Income Tax Expense

Our results for the three and six months ended June 30, 2013 and 2012 included the effects of adjustments related to our tax receivable agreement and the associated liability to selling and converting shareholders.  Our effective corporate tax rate, exclusive of adjustments related to our tax receivable agreement and the associated liability to selling and converting shareholders, was 40.5% and 41.5% for the three and six months ended June 30, 2013, respectively, and 41.9% and 42.4% for the three and six months ended June 30, 2012, respectively. The decrease in the corporate effective rate reflects a decrease in state and local rates associated with a change in methodology for calculating state and local receipts during 2013. Results for the six months ended June 30, 2013 also reflect a $0.6 million unincorporated business tax benefit recognized by our operating company associated with the amendment of prior year tax returns to change the methodology for state and local receipts.

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Non-GAAP income before corporate income taxes used to calculate our income before income taxes for the three and six months ended June 30, 2013 and 2012 are as follows:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
	(in thousands)
Income Before Income Taxes	$	11,526		$	8,540		$	20,779		$	18,471
Change in Liability to Selling and Converting Shareholders	229			(315		)	1,268			658
Unincorporated Business Taxes1	(670		)	(551		)	(724		)	(1,184		)
Net Income Attributable to Non-Controlling Interests	(9,026		)	(6,392		)	(17,548		)	(15,070		)
Non-GAAP Income Before Corporate Taxes	$	2,059		$	1,282		$	3,775		$	2,875

^{1 During March 2013, the operating company recognized a $0.6 million tax benefit associated with the amendment of prior year tax returns to change the methodology for calculating state and local receipts.} 

Our non-GAAP effective corporate tax rate, which is exclusive of adjustments related to our tax receivable agreement and the associated liability to selling and converting shareholders, was determined as follows:

	For the Three Months Ended June 30,
	2013					2012
	Tax			% of Non- GAAP Pre-tax Income		Tax			% of Non- GAAP Pre-tax Income
	(in thousands)					(in thousands)
Federal Corporate Tax	$	700		34.0	%	$	436		34.0	%
State and Local Taxes, Net of Federal Benefit	156			7.6	%	113			8.8	%
Other Adjustments	(22		)	(1.1	)%	(12.0		)	(0.9	)%
Non-GAAP Effective Taxes	$	834		40.5	%	$	537		41.9	%

	For the Six Months Ended June 30,
	2013					2012
	Tax			% of Non- GAAP Pre-tax Income		Tax			% of Non- GAAP Pre-tax Income
	(in thousands)					(in thousands)
Federal Corporate Tax	$	1,284		34.0	%	$	978		34.0	%
State and Local Taxes, Net of Federal Benefit	286			7.6	%	253			8.8	%
Other Adjustments	(3		)	(0.1	)%	(12.0		)	(0.4	)%
Non-GAAP Effective Taxes	$	1,567		41.5	%	$	1,219		42.4	%

Three Months Ended June 30, 2013 versus June 30, 2012

Income tax expense was $1.2 million for the three months ended June 30, 2013 and $1.5 million for the three months ended June 30, 2012.  The three months ended June 30, 2013 and 2012 income tax expense included $0.6 million of benefit and $0.4 million of expense, respectively, associated with adjustments to the valuation allowance recorded against our deferred tax asset.  Results for the three months ended June 30, 2013 also includes a net adjustment of $0.3 in income tax expense to the deferred tax asset and valuation allowance associated with the decrease in our effective tax rate during 2013. Exclusive of these

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adjustments, the remaining income tax expense for the three months ended June 30, 2013 consisted of $0.7 million in operating company unincorporated business taxes and $0.8 million of corporate income taxes.  On a similar basis, the remaining income tax expense for the three months ended June 30, 2012, consisted of $0.6 million of operating company unincorporated business taxes and $0.5 million of corporate income taxes.  The increase in these taxes is attributable primarily to an increase in taxable income, partially offset by the effect of the decrease in both the corporate effective tax rate and operating company's unincorporated business tax rate, both due to the change in our methodology for state and local receipts.  A comparison of the GAAP effective tax rates for the three months ended June 30, 2013 and 2012 is not meaningful due to the valuation allowance adjustments.

Six Months Ended June 30, 2013 versus June 30, 2012

Income tax expense was $0.8 million for the six months ended June 30, 2013 and $1.8 million for the six months ended June 30, 2012.  The six months ended June 30, 2013 and 2012 income tax expense included $1.8 million and $0.6 million of income, respectively, associated with adjustments to the valuation allowance recorded against our deferred tax asset.  Results for the six months ended June 30, 2013 also includes the net adjustment of $0.3 in income tax expense to the deferred tax asset and valuation allowance associated with the decrease in our effective tax rate during 2013. Exclusive of these adjustments, the remaining income tax expense for the six months ended June 30, 2013 consisted of $0.7 million in operating company unincorporated business taxes and $1.6 million of corporate income taxes.  On a similar basis, the remaining income tax expense for the six months ended June 30, 2012 consisted of $1.2 million of operating company unincorporated business taxes and $1.2 million of corporate income taxes.  The increase in these taxes is attributable primarily to an increase in taxable income, partially offset by the effect of the decrease in the corporate effective tax rate and operating company's unincorporated business tax rate, and the operating company's $0.6 million tax benefit, recognized during March 2013, associated with the amendment of prior year tax returns to change the methodology for state and local receipts.  A comparison of the GAAP effective tax rates for the six months ended June 30, 2013 and 2012 is not meaningful due to the valuation allowance adjustments.

Net Income Attributable to Non-Controlling Interests

Three Months Ended June 30, 2013 versus June 30, 2012

Net income attributable to non-controlling interests was $9.0 million for the three months ended June 30, 2013, and consisted of $8.7 million associated with our employees’ and outside investors’ approximately 81.0% weighted average interest in the income of the operating company, and approximately $0.3 million associated with our consolidated subsidiaries’ interest in the income of our consolidated investment partnerships.  Net income attributable to non-controlling interests was $6.4 million for the three months ended June 30, 2012, and consisted of $6.5 million associated with our employees’ and outside investors’ approximately 83.7% weighted average interest in the income of the operating company, partially offset by the $0.1 million effect of the absorption, by our consolidated subsidiaries, of their share of the losses of our consolidated investment partnerships.  The change in net income attributable to non-controlling interests primarily reflects the increase in operating company net income associated with the increase in our average AUM which had a corresponding positive impact on operating company revenues and income. The change in net income attributable to non-controlling interests also reflects the decrease in our employees’ and outside investors’ weighted average interest in the income of the operating company.  We would expect the interests in our operating company in subsequent periods to depend on changes in our shareholder’s equity and the size and composition of Class B units awarded by our operating company’s compensation plans.

Six Months Ended June 30, 2013 versus June 30, 2012

Net income attributable to non-controlling interests was $17.5 million for the six months ended June 30, 2013, and consisted of $16.8 million associated with our employees’ and outside investors’ approximately 81.9% weighted average interest in the income of the operating company, and approximately $0.7 million associated with our consolidated subsidiaries’ interest in the income of our consolidated investment partnerships.  Net income attributable to non-controlling interests was $15.1 million for the six months ended June 30, 2012, and consisted of $14.7 million associated with our employees’ and outside investors’ approximately 83.6% weighted average interest in the income of the operating company, and approximately $0.4 million associated with our consolidated subsidiaries’ interest in the income of our consolidated investment partnerships.  The change in net income attributable to non-controlling interests primarily reflects the increase in operating company net income associated with the increase in our average AUM which had a corresponding positive impact on operating company revenues and income. The change in net income attributable to non-controlling interests also reflects the decrease in our employees’ and outside investors’ weighted average

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interest in the income of the operating company.  We would expect the interests in our operating company in subsequent periods to depend on changes in our shareholder’s equity and the size and composition of Class B units awarded by our operating company’s compensation plans.

Liquidity and Capital Resources

Historically, the working capital needs of our business have primarily been met through the cash generated by our operations.  Distributions to members of our operating company are our largest use of cash from financing activities.  Investing activities have historically been investments in our own investment strategies, purchases and sales of investments to fund our deferred compensation program, and, to a lesser extent, capital expenditures.

At June 30, 2013, our cash and cash equivalents was $25.7 million, inclusive of $1.8 million in cash held by our consolidated subsidiaries.  Advisory fees receivable was $18.4 million. We also had approximately $4.6 million in mutual fund investments and $1.0 million in our cash and cash equivalents set aside to satisfy our obligations under our deferred compensation program.

We expect to fund the liquidity needs of our business in the next twelve months, and over the long-term, primarily through cash generated from operations.  As an investment management firm, our business has been materially affected by conditions in the global financial markets and economic conditions throughout the world.  Our liquidity is highly dependent on the revenue and income from our operations, which is directly related to our levels of AUM.  For the three months ended June 30, 2013, our average AUM and revenues increased by 46.7% and 20.7%, respectively, compared to our average AUM and revenues for the three months ended June 30, 2012.

In determining the sufficiency of liquidity and capital resources to fund our business, we regularly monitor our liquidity position, including, among other things, cash, working capital, investments, long-term liabilities, lease commitments, debt obligations, and operating company distributions.  Compensation is our largest expense.  To the extent we deem necessary and appropriate to run our business, recognizing the need to retain our key personnel, we have the ability to change the absolute levels of our compensation packages, as well as change the mix of their cash and non-cash components.  Historically, we have not tied our level of compensation directly to revenue, as many Wall Street firms do.  Correspondingly, there is not a linear relationship between our compensation and the revenues we generate.  This generally has the effect of increasing operating margins in periods of increased revenues, but can reduce operating margins when revenue declines.

We continuously evaluate our staffing requirements and compensation levels with reference to our own liquidity position and external peer benchmarking data.  The result of this review directly influences management’s recommendations to our Board of Directors with respect to such staffing and compensation levels.

We anticipate that tax allocations and dividend equivalent payments to the members of our operating company, which consisted of 34 of our employees, certain unaffiliated persons, former employees, and us, will continue to be a material financing activity.  Cash distributions to operating company members for partnership tax allocations would increase should the taxable income of the operating company increase.  Dividend equivalent payments will depend on our dividend policy and the discretion of our Board of Directors, as discussed below.

We do not anticipate meaningful outlays for internal investment or capital expenditures over the next twelve months.

We believe that our lack of long-term debt, and ability to vary cash compensation levels, have provided us with an appropriate degree of flexibility in providing for our liquidity needs.

Dividend Policy

We are a holding company and have no material assets other than our ownership of membership interests in our operating company. As a result, we depend upon distributions from our operating company to pay any dividends that our Board of Directors may declare to be paid to our Class A common stockholders. When, and if, our Board of Directors declares any such dividends, we then cause our operating company to make distributions to us in an amount sufficient to cover the dividends declared. Our dividend policy has certain risks and limitations, particularly with respect to liquidity. We may not pay dividends to our Class A common shareholders in amounts that have been paid to them in the past, or at all, if, among other things, we do not have the cash necessary to pay our intended dividends. To the extent we do not have cash on hand sufficient to pay dividends in the future, we may decide not to pay dividends. By paying cash dividends rather than investing that cash in our future growth, we risk slowing

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the pace of our growth, or not having a sufficient amount of cash to fund our operations or unanticipated capital expenditures, should the need arise.

On an annual basis, our Board of Directors has targeted a cash dividend payout ratio of approximately 70% to 80% of our non-GAAP net income, subject to growth initiatives and other funding needs.  Our ability to pay dividends is subject to the Board of Directors’ discretion and may be limited by our holding company structure and applicable provisions of Delaware law.

Tax Receivable Agreement

Our purchase of membership units of our operating company concurrent with our initial public offering, and the subsequent and future exchanges by holders of Class B units of our operating company for shares of our Class A common stock (pursuant to the exchange rights provided for in the operating company’s operating agreement), has resulted in, and is expected to continue to result in, increases in our share of the tax basis of the tangible and intangible assets of our operating company, which will increase the tax depreciation and amortization deductions that otherwise would not have been available to us. These increases in tax basis and tax depreciation and amortization deductions have reduced, and are expected to continue to reduce, the amount of cash taxes that we would otherwise be required to pay in the future. We have entered into a tax receivable agreement with the current members of our operating company, the one member of our operating company immediately prior to our initial public offering who sold all of its membership units to us in connection with our initial public offering, and any future holders of Class B units, that requires us to pay them 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we actually realize (or are deemed to realize in the case of an early termination payment by us, or a change in control, as described in the tax receivable agreement) as a result of the increases in tax basis described above and certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.

Cash Flows

Three Months Ended June 30, 2013 versus June 30, 2012

Cash and Cash Equivalents increased $1.2 million to $25.7 million during the three months ended June 30, 2013 compared to a $4.1 million increase in cash to $31.9 million during the three months ended June 30, 2012.  Net cash provided by operating activities decreased $0.5 million in the three months ended June 30, 2013 to $12.9 million from $13.4 million in the three months ended June 30, 2012.  The decrease was primarily due to changes in operating assets and liabilities and working capital.

Net cash used in investing activities was relatively flat for the three months ended June 30, 2013 compared the three months ended June 30, 2012.  

Net cash used in financing activities increased $2.3 million for the three months ended June 30, 2013 to $11.6 million from $9.3 million for the three months ended June 30, 2012.  This increase is primarily due to the a $1.3 million increase in distributions to non-controlling interests and a $0.9 million increase in the repurchase and retirement of Class A common stock, during the three months ended June 30, 2013.

Six Months Ended June 30, 2013 versus June 30, 2012

Cash and Cash Equivalents decreased $7.0 million to $25.7 million during the six months ended June 30, 2013 compared to a $3.2 million decrease in cash to $31.9 million during the six months ended June 30, 2012.  Net cash provided by operating activities decreased $1.3 million in the six months ended June 30, 2013 to $20.2 million from $21.4 million in the six months ended June 30, 2012.  The decrease was primarily due to changes in operating assets and liabilities and working capital.

Net cash used in investing activities was $1.4 million for six months ended June 30, 2013, compared to net cash provided by investing activities of less than $0.1 million for the six months ended June 30, 2012.  The $1.5 million increase in cash used was primarily attributable to a $1.0 million increase in purchases from investments in our deferred compensation program and a $0.5 million decrease in proceeds from sales of investments in our deferred compensation program during the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

Net cash used in financing activities increased $1.0 million for the six months ended June 30, 2013 to $25.7 million from $24.7 million for the six months ended June 30, 2012.  This increase is primarily due to a $1.6 million increase in the repurchase

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and retirement of Class A common stock partially offset by a $0.5 million decrease in distributions to non-controlling interests during the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2013.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP), requires management to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources.  We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

Accounting policies are an integral part of our financial statements.  A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial condition.  Management believes that the critical accounting policies discussed below involve additional management judgment due to the sensitivity of the methods and assumptions used.

Consolidation

Our policy is to consolidate all majority-owned subsidiaries in which we have a controlling financial interest and variable-interest entities of which we are deemed to be the primary beneficiary.  We also consolidate non-variable-interest entities which we control as the general partner or managing member.  We assess our consolidation practices regularly, as circumstances dictate.  All significant inter-company transactions and balances have been eliminated.

Income Taxes

We are a “C” corporation under the Internal Revenue Code, and thus liable for federal, state and local taxes on the income derived from our economic interest in our operating company.  The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes.  Our operating company has not made a provision for federal or state income taxes because it is the responsibility of each of the operating company’s members (including us) to separately report their proportionate share of the operating company’s taxable income or loss.  Similarly, the income of our consolidated investment partnerships is not subject to income taxes, as such income is allocated to each partnership’s individual partners.  The operating company has made a provision for New York City Unincorporated Business Tax (UBT).

We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases, net operating loss carryforwards and tax credits.  A valuation allowance is maintained for deferred tax assets that we estimate are more likely than not to go unrealizable based on available evidence at the time the estimate is made.  Determining the valuation allowance requires management to make significant judgments and assumptions.  In determining the valuation allowance, we use historical and forecasted future operating results, based upon approved business plans, including a review of the eligible carryforward periods, tax planning opportunities and other relevant considerations.  Each quarter, we re-evaluate our estimate related to the valuation allowance, including our assumptions about future taxable income.

We believe that the accounting estimate related to the $63.8 million valuation allowance, recorded against the deferred tax asset associated with our acquisition of operating company membership units, is a critical accounting estimate because the underlying assumptions can change from period to period.  For example, tax law changes, or variances in future projected operating performance, could result in a change in the valuation allowance.  If we are not able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax asset valuation allowance would be charged to income tax expense in the period such determination was made.

Management judgment is required in determining our provision for income taxes, evaluating our tax positions and establishing deferred tax assets and liabilities.  The calculation of our tax liabilities involves dealing with uncertainties in the

35

application of complex tax regulations.  If our estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to earnings would result.

Recently Issued Accounting Pronouncements

We have reviewed all recently issued accounting pronouncements that are applicable to our business and to the preparation of our consolidated financial statements, including those not yet required to be adopted.  We do not believe any such pronouncements will have a material effect on the Company’s financial position or results of operations.

36

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

Our exposure to market risk is directly related to our role as investment adviser for the institutional separate accounts we manage and the retail clients for which we act as sub-investment adviser.  As noted in Item 1A, “Risk Factors,” of our Form 10-K for the year ended December 31, 2012, filed with the SEC on March 12, 2013, we could experience declines in AUM due to, among other factors, poor performance of our investment strategies or a general economic downturn. These conditions could lead to declines in revenue and profitability, and there can be no assurance that there will not be declines in our AUM, revenue and profitability in the future. An economic downturn, and volatility in the global financial markets, could also significantly affect the estimates, judgments, and assumptions used in the valuation of our financial instruments.

Our revenue for the three and six months ended June 30, 2013 and 2012 was generally derived from advisory fees, which are typically based on the market value of our AUM, which can be affected by adverse changes in interest rates, foreign currency exchange and equity prices.  Accordingly, a decline in the prices of securities would cause our revenue and income to decline, due to a decrease in the value of the assets we manage.  In addition, such a decline could cause our clients to withdraw their funds in favor of investments offering higher returns or lower risk, which would cause our revenue and income to decline further.

We are also subject to market risk due to a decline in the value of the holdings of our consolidated subsidiaries, which consist primarily of marketable securities and investments in mutual funds.  At June 30, 2013, the fair value of these marketable securities and investments in mutual funds was $3.8 million and $4.6 million, respectively.  Assuming a 10% increase or decrease, the fair value would have increased or decreased by $0.4 million and $0.5 million, respectively, at June 30, 2013.

Interest Rate Risk

Since the Company does not have any debt that bears interest at a variable rate, it does not have any direct exposure to interest rate risk at June 30, 2013.

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Item 4.   Controls and Procedures.

During the course of their review of our consolidated financial statements as of June 30, 2013, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2013, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have not been any changes in our internal control over financial reporting during the three months ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

The table below sets forth information regarding purchases of our Class A Common Stock on a monthly basis during the three months ended June 30, 2013.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Period	(a) Total Number of Shares of Class A Common Stock Purchased	(b) Average Price Paid per Share of Class A Common Stock		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs2
					(in millions)
April 1, 2013 through April 30, 2013	66,925	$	5.97	66,925	$	8.0
May 1, 2013 through May 31, 2013	29,798	6.06		29,798	7.8
June 1, 2013 through June 30, 2013	68,839	6.34		68,839	7.4
Total	165,562	$	6.14	165,562	$	7.4

^{1 Our current share repurchase program was announced on April 24, 2012. The Board of Directors authorized us to repurchase an aggregate of $10 million of our outstanding Class A common stock and the operating company's Class B units on the open market and in private transactions in accordance with applicable securities laws. The timing, number and value of common shares and units repurchased are subject to the Company’s discretion. The Company’s share repurchase program is not subject to an expiration date and may be suspended, discontinued, or modified at any time, for any reason.} 

^{2 During the three months ended June 30, 2013, the Company did not purchase any Class B units of the operating company.} 

Item 6.  Exhibits.

Exhibit	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	Materials from the Pzena Investment Management, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in Extensible Business Reporting Language (XBRL):  (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Changes in Equity, (iv) Consolidated Statements of Cash Flows, and (vi) related Unaudited Notes to the Consolidated Financial Statements, tagged in detail (furnished herewith).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: August 6, 2013

PZENA INVESTMENT MANAGEMENT, INC.
By:	/s/ RICHARD S. PZENA
	Name:	Richard S. Pzena
	Title:	Chief Executive Officer
By:	/s/ GARY J. BACHMAN
	Name:	Gary J. Bachman
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

40

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

I, Richard S. Pzena, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Pzena Investment Management, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 6, 2013	/s/ RICHARD S. PZENA
	Name: Richard S. Pzena
	Title: Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

I, Gary J. Bachman, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Pzena Investment Management, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 6, 2013	/s/ GARY J. BACHMAN
	Name: Gary J. Bachman
	Title: Chief Financial Officer          (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer pursuant to

18 U.S.C. Section 1350,

as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Pzena Investment Management, Inc. (the “Company”) for the quarter ended June 30, 2013, as filed with the Securities and Exchange Commission (the “Report”), Richard S. Pzena, as Chief Executive Officer of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)    The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 6, 2013	/s/ RICHARD S. PZENA
	Name: Richard S. Pzena
	Title: Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer pursuant to

18 U.S.C. Section 1350,

as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Pzena Investment Management, Inc. (the “Company”) for the quarter ended June 30, 2013, as filed with the Securities and Exchange Commission (the “Report”), Gary J. Bachman, as Chief Financial Officer of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)    The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 6, 2013	/s/ GARY J. BACHMAN
	Name: Gary J. Bachman
	Title: Chief Financial Officer          (Principal Financial and Accounting Officer)

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Related Party Transactions

6 Months Ended

Jun. 30, 2013

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

For the three months ended June 30, 2013 and 2012, the Company earned $0.3 million and $0.4 million, respectively, in investment advisory fees from unconsolidated VIEs which receive investment management services from the Company.  For the six months ended June 30, 2013 and 2012, the Company earned $0.7 million and $0.8 million, respectively, in such fees. The Company is not the primary beneficiary of these VIEs.

At both June 30, 2013 and December 31, 2012, the Company had approximately $0.1 million remaining of advances to an international investment company for organization and start-up costs, which are included in Receivable from Related Parties on the consolidated statements of financial condition.  The Company is the sponsor and investment manager of this entity.

At June 30, 2013 and December 31, 2012, Receivable from Related Parties included approximately $0.1 million of loans to employees.

The operating company manages the personal funds of certain of the Company’s employees, including the CEO, its two Presidents, and its two Executive Vice Presidents.  The operating company also manages accounts beneficially owned by a private fund in which certain of the Company’s executive officers invest.  Investments by employees in individual accounts are permitted only at the discretion of the executive committee of the operating company, but are generally not subject to the same minimum investment levels that are required of outside investors.  The operating company also manages the personal funds of some of its employees’ family members.  Pursuant to the respective investment management agreements, the operating company waives or reduces its regular advisory fees for these accounts and personal funds.   In addition, the operating company pays custody and administrative fees for certain of these accounts and personal funds in order to incubate products or preserve performance history.  The aggregate value of the fees that the Company waived related to the Company’s executive officers, other employees, and family members, was approximately $0.1 million for each of the three months ended June 30, 2013 and 2012.  For each of the six months ended June 30, 2013 and 2012, the Company waived $0.2 million of such fees. The aggregate value of the custody and administrative fees paid related to the Company’s executive offers, other employees, and family members was less than $0.1 million for each of the three months ended June 30, 2013 and 2012. The Company paid approximately $0.1 million of such fees for the six months ended June 30, 2013 and 2012.

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2013		Jun. 30, 2012		Jun. 30, 2013		Jun. 30, 2012
Income Statement [Abstract]
REVENUE	$ 22,132		$ 18,339		$ 42,974		$ 38,107
EXPENSES
Compensation and Benefits Expense	8,914		8,012		18,522		16,185
General and Administrative Expense	1,943		1,916		3,752		3,619
Total Operating Expenses	10,857		9,928		22,274		19,804
Operating Income	11,275		8,411		20,700		18,303
OTHER INCOME/(EXPENSE)
Interest Income	27		41		54		95
Interest Expense	0		0		0		(26)
Dividend Income	87		34		116		58
Net Realized and Unrealized Gain/ (Loss) from Investments	414		(189)		1,265		666
Change in Liability to Selling and Converting Shareholders	(229)		315		(1,268)		(658)
Other (Expense)/ Income	(48)		(72)		(88)		33
Total Other Income	251		129		79		168
Income Before Income Taxes	11,526		8,540		20,779		18,471
Income Tax Expense	1,234		1,534		796		1,780
Net Income	10,292		7,006		19,983		16,691
Less: Net Income Attributable to Non-Controlling Interests	9,026		6,392		17,548		15,070
Net Income Attributable to Pzena Investment Management, Inc.	1,266		614		2,435		1,621
Net Income for Basic Earnings per Share	1,266		614		2,435		1,621
Basic Earnings Per Share (in dollars per share)	$ 0.10		$ 0.06		$ 0.21		$ 0.15
Basic Weighted Average Shares Outstanding (in shares)	12,315,065		10,565,406		11,793,938		10,570,247
Net Income for Diluted Earnings per Share	$ 6,358		$ 614		$ 12,268		$ 10,032
Diluted Earnings per Share (in dollars per share)	$ 0.10		$ 0.06		$ 0.18		$ 0.15
Diluted Weighted Average Shares Outstanding (in shares)	66,562,823	[1]	10,565,406	[1]	66,550,266	[1]	65,395,327	[1]
Cash Dividends per Share of Class A Common Stock (in dollars per share)	$ 0.03		$ 0.03		$ 0.19		$ 0.22

[1] Under the "two-class method," restricted Class B units that are considered participating securities are required to be included in the computation of diluted earnings per share.

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Compensation and Benefits

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Compensation and Benefits

Compensation and Benefits

Compensation and benefits expense to employees and members is comprised of the following:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)
Cash Compensation and Other Benefits	$	7,689	$	7,347	$	16,077	$	14,834
Non-Cash Compensation	1,225		665		2,445		1,351
Total Compensation and Benefits Expense	$	8,914	$	8,012	$	18,522	$	16,185

All non-cash compensation awards granted have varying vesting schedules and are issued at prices equal to the assessed fair market value at the time of issuance, as discussed below.  For the three months ended June 30, 2013 and 2012, the operating company did not grant any non-cash compensation awards. Details of restricted Class B units and restricted shares of Class A common stock awarded during the six months ended June 30, 2013 and 2012 are as follows:

	For the Six Months Ended June 30,			For the Six Months Ended June 30,
	2013			2012
	Amount	Fair Value1		Amount	Fair Value1
Restricted Class B Units	18,517	$	5.40	53,116	$	4.33
Restricted Shares of Class A Common Stock	100,000	$	4.41	—	$	—

1 Represents the grant date estimated fair value per share or unit.

Pursuant to the Pzena Investment Management, LLC Amended and Restated 2006 Equity Incentive Plan (“the 2006 Equity Incentive Plan”), the operating company issues restricted units, phantom Class B units and options to purchase units in our operating company.  Under the Pzena Investment Management, Inc. 2007 Equity Incentive Plan (“the 2007 Equity Incentive Plan”), the Company issued shares of restricted Class A common stock and options to acquire shares of Class A common stock.

Under the Pzena Investment Management, LLC Amended and Restated Bonus Plan (the “Bonus Plan”), eligible employees whose cash compensation is in excess of certain thresholds have a portion of that excess mandatorily deferred.  These deferred amounts may be invested, at the employee’s discretion, in certain third-party mutual funds, phantom operating company Class B units, or money market funds.  Amounts deferred in any calendar year reduce that year’s cash compensation expense and are both amortized and vest ratably over a four-year period commencing the following year.  As of June 30, 2013 and December 31, 2012, the liability associated with deferred compensation investment accounts was $1.0 million and $1.3 million, respectively.

For the three months ended June 30, 2013 and 2012, the Company recognized approximately $1.2 million and $0.7 million, respectively, in compensation and benefits expense associated with the amortization of all unvested operating company Class B units, option grants, and operating company phantom Class B units issued under the 2006 Equity Incentive Plan; restricted Class A common stock issued under the 2007 Equity Incentive Plan; and all unvested deferred compensation awards associated with the Bonus Plan. For the six months ended June 30, 2013 and 2012, the Company recognized approximately $2.4 million and $1.4 million, respectively, in such compensation and benefits expense.

Pursuant to the Pzena Investment Management, Inc. Non-Employee Director Deferred Compensation Plan (the “Director Plan”), non-employee directors may elect to have all or part of the compensation otherwise payable to the director in cash, deferred in the form of phantom shares of Class A common stock of the company.  Elections to defer compensation under the Director Plan are made on a year-to-year basis.  Distributions under the Director Plan shall be made in a single distribution of shares of Class A common stock at such time as elected by the participant when the deferral was made.  Since inception of the Director Plan in 2009, the Company’s directors have elected to defer 100% of their compensation in the form of phantom shares of Class A common stock.  Amounts deferred in any calendar year are amortized over the calendar year and reflected as General and Administrative Expense.  As of June 30, 2013 and December 31, 2012, there were 203,052 and 147,500 phantom shares of Class A common stock outstanding, respectively.  There have been no distributions made under the Director Plan to date.

The Company issues to certain of its employees delayed-vesting cash awards.  For the three and six months ended June 30, 2013 and 2012no such awards were granted.  Delayed-vesting cash awards have varying vesting schedules with $1.0 million to be paid at the end of 2013 and the remaining $0.5 million to be paid at the end of 2014.

As of June 30, 2013 and December 31, 2012, the Company had approximately $17.0 million and $17.9 million, respectively, in unrecorded compensation expense related to unvested operating company phantom Class B units issued pursuant to its Bonus Plan; operating company Class B units, option grants, and operating company phantom Class B units issued under the 2006 Equity Incentive Plan; and restricted Class A common stock issued under the 2007 Equity Incentive Plan.

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Compensation and Benefits (Tables)

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of compensation and benefits expense to employees and members

Compensation and benefits expense to employees and members is comprised of the following:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)
Cash Compensation and Other Benefits	$	7,689	$	7,347	$	16,077	$	14,834
Non-Cash Compensation	1,225		665		2,445		1,351
Total Compensation and Benefits Expense	$	8,914	$	8,012	$	18,522	$	16,185

Schedule of share based compensation activity

Details of restricted Class B units and restricted shares of Class A common stock awarded during the six months ended June 30, 2013 and 2012 are as follows:

	For the Six Months Ended June 30,			For the Six Months Ended June 30,
	2013			2012
	Amount	Fair Value1		Amount	Fair Value1
Restricted Class B Units	18,517	$	5.40	53,116	$	4.33
Restricted Shares of Class A Common Stock	100,000	$	4.41	—	$	—

1 Represents the grant date estimated fair value per share or unit.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

In the normal course of business, the Company enters into agreements that include indemnities in favor of third parties, such as engagement letters with advisors and consultants. In certain cases, the Company may have recourse against third parties with respect to these indemnities. The Company maintains insurance policies that may provide coverage against certain claims under these indemnities. The Company has had no claims or payments pursuant to these agreements, and it believes the likelihood of a claim being made is remote. Utilizing the methodology in the Guarantees Topic of the FASB ASC, the Company’s estimate of the value of such guarantees is de minimis, therefore, no accrual has been made in the consolidated financial statements.

The Company leases office space under a non-cancelable operating lease agreement which expires on October 31, 2015.  The Company reflects minimum lease expense for its headquarters on a straight-line basis over the lease term.  During the year ended December 31, 2011, the Company entered into a noncancelable sublease agreement for certain excess office space associated with its operating lease agreement.  The sublease agreement also expires on October 31, 2015.

Lease expenses were $0.3 million for each of the three months ended June 30, 2013 and 2012 and are included in general and administrative expense. Such expenses totaled $0.7 million for each of the six months ended June 30, 2013 and 2012.

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Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Property, plant and equipment, including leasehold improvements, net [Abstract]
Property and equipment, gross	$ 3,479		$ 3,479		$ 3,474
Less: Accumulated Depreciation and Amortization	(2,772)		(2,772)		(2,695)
Property and equipment, net	707		707		779
Depreciation expense	38	57	77	115
Leasehold Improvements [Member]
Property, plant and equipment, including leasehold improvements, net [Abstract]
Property and equipment, gross	1,219		1,219		1,219
Computer Hardware [Member]
Property, plant and equipment, including leasehold improvements, net [Abstract]
Property and equipment, gross	987		987		982
Furniture and Fixtures [Member]
Property, plant and equipment, including leasehold improvements, net [Abstract]
Property and equipment, gross	788		788		788
Office Equipment [Member]
Property, plant and equipment, including leasehold improvements, net [Abstract]
Property and equipment, gross	271		271		271
Computer Software [Member]
Property, plant and equipment, including leasehold improvements, net [Abstract]
Property and equipment, gross	$ 214		$ 214		$ 214

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Investments, at Fair Value (Tables)

6 Months Ended

Jun. 30, 2013

Investments, Debt and Equity Securities [Abstract]

Investment in equity securities

Investments, at Fair Value consisted of the following at June 30, 2013:

	Cost		Unrealized Gain/(Loss)		Fair Value
	(in thousands)
Equity Securities	$	3,397	$	368	$	3,765
Investments in Mutual Funds	3,983		575		4,558
Total	$	7,380	$	943	$	8,323

Investments, at Fair Value consisted of the following at December 31, 2012:

	Cost		Unrealized Gain/(Loss)		Fair Value
	(in thousands)
Equity Securities	$	1,988	$	237	$	2,225
Investments in Mutual Funds	2,561		384		2,945
Total	$	4,549	$	621	$	5,170

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Non-Controlling Interests (Tables)

6 Months Ended

Jun. 30, 2013

Noncontrolling Interest [Abstract]

Non-controlling interest income

Net Income Attributable to Non-Controlling Interests in the operations of the Company’s operating company and consolidated subsidiaries is comprised of the following:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2013		2012			2013		2012
	(in thousands)
Non-Controlling Interests of Pzena Investment Management, LLC	$	8,715	$	6,508		$	16,829	$	14,717
Non-Controlling Interests of Consolidated Investment Partnerships	311		(116		)	719		353
Net Income Attributable to Non-Controlling Interests	$	9,026	$	6,392		$	17,548	$	15,070

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Earnings per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2013		Jun. 30, 2012		Jun. 30, 2013		Jun. 30, 2012
Computation of basic earnings per share [Abstract]
Net Income for Basic Earnings per Share	$ 1,266		$ 614		$ 2,435		$ 1,621
Basic Weighted-Average Shares Outstanding (in shares)	12,315,065		10,565,406		11,793,938		10,570,247
Basic Earnings Per Share (in dollars per share)	$ 0.10		$ 0.06		$ 0.21		$ 0.15
Diluted net income [Abstract]
Net Income Attributable to Non-Controlling Interests of Pzena Investment Management, LLC	9,026		6,392		17,548		15,070
Diluted Net Income	6,358		614		12,268		10,032
Diluted Net Income Allocated to [Abstract]
Total Diluted Net Income Attributable to Shareholders	6,358		614		12,268		10,032
Basic Weighted-Average Shares Outstanding (in shares)	12,315,065		10,565,406		11,793,938		10,570,247
Dilutive Effect of Operating Company B Units (in shares)	52,190,656		0		52,770,426		54,010,518
Dilutive Effect of Options (in shares)	637,208	[1]	0	[1]	630,821	[1]	463,088	[1]
Dilutive Effect of Phantom Operating Company Class B Units & Class A Common Stock (in shares)	1,232,905		0		1,174,261		105,987
Dilutive Effect of Restricted Shares of Class A Common Stock (in shares)	29,663	[2]	0	[2]	23,494	[2]	0	[2]
Dilutive Weighted-Average Shares Outstanding (in shares)	66,405,497		10,565,406		66,392,940		65,149,840
Add: Participating Restricted Operating Company Class B Units (in shares)	157,326	[3]	0	[3]	157,326	[3]	245,487	[3]
Total Dilutive Weighted-Average Shares Outstanding (in shares)	66,562,823	[4]	10,565,406	[4]	66,550,266	[4]	65,395,327	[4]
Diluted Earnings per Share (in dollars per share)	$ 0.10		$ 0.06		$ 0.18		$ 0.15
Options to Purchase Operating Company Class B Units [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Securities excluded from the calculation of diluted net income per share (in shares)	1,200,000		1,700,000		1,200,000		1,700,000
Options to Purchase Shares of Class A Common Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Securities excluded from the calculation of diluted net income per share (in shares)	1,000,000		1,000,000		1,000,000		1,000,000
Common Class A [Member]
Diluted Net Income Allocated to [Abstract]
Total Diluted Net Income Attributable to Shareholders	6,343		614		12,239		9,994
Participating Class B Restricted Units [Member]
Diluted Net Income Allocated to [Abstract]
Total Diluted Net Income Attributable to Shareholders	15		0		29		38
Pzena Investment Management, LLC [Member]
Computation of basic earnings per share [Abstract]
Net Income for Basic Earnings per Share	1,266		614		2,435		1,621
Diluted net income [Abstract]
Net Income Attributable to Non-Controlling Interests of Pzena Investment Management, LLC	8,715		6,508		16,829		14,717
Less: Assumed Corporate Income Taxes	3,623		2,789		6,996		6,306
Assumed After-Tax Income of Pzena Investment Management, LLC	5,092		3,719		9,833		8,411
Diluted Net Income	$ 6,358	[5]	$ 4,333	[5]	$ 12,268	[5]	$ 10,032	[5]

[1] Represents the dilutive effect of options to purchase operating company Class B units and Company Class A common stock.

[2] Certain restricted shares of Class A common stock granted to employees are not entitled to dividend or dividend equivalent payments until they are vested and are therefore non-participating securities and are not included in the computation of basic earnings per share. They are included in the computation of diluted earnings per share when the effect is dilutive using the treasury stock method.

[3] Restricted Class B Units granted to employees have nonforfeitable rights to dividend equivalent distributions and therefore participate fully in the results of the operating company's operations from the date they are granted. They are included in the computation of diluted earnings per share using the two-class method for participating securities.

[4] Under the "two-class method," restricted Class B units that are considered participating securities are required to be included in the computation of diluted earnings per share.

[5] Since the assumed incremental income results in an increase in per share income for the three months ended June 30, 2012, the assumed effects of the conversion of operating company Class B units, options to purchase operating company units, options to purchase Class A common stock, and phantom operating company units are excluded from the the calculation of diluted income per share.

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Commitments and Contingencies (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Commitments and Contingencies Disclosure [Abstract]
Lease expenses	$ 0.3	$ 0.3	$ 0.7	$ 0.7

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Significant Accounting Policies (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 segment	Jun. 30, 2012	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Revenue Recognition
Contract measurement period (in years)			3 years
Performance fee income	$ 100,000	$ 0	$ 100,000	$ 300,000
Cash and Cash Equivalents
Cash and cash equivalents	25,675,000	31,890,000	25,675,000	31,890,000	24,459,000	32,645,000	27,801,000	35,083,000
Restricted Cash
Restricted cash	1,031,000		1,031,000			1,030,000
Concentration of Credit Risk
Allowance for doubtful accounts receivable	0		0			0
Business Segments
Number of operating segments (in segments)			1
Income Taxes
Valuation allowance on deferred tax assets	58,185,000	60,427,000	58,185,000	60,427,000	63,832,000	59,917,000	59,981,000	61,050,000
Accumulated Other Comprehensive Income
Accumulated other comprehensive income	0	0	0	0
Property and Equipment [Member] | Minimum [Member]
Property and Equipment [Line Items]
Useful life of property and equipment (in years)			3 years
Property and Equipment [Member] | Maximum [Member]
Property and Equipment [Line Items]
Useful life of property and equipment (in years)			7 years
Level 1 [Member]
Fair value of instruments [Abstract]
Equity Securities	3,765,000		3,765,000			2,225,000
Investments in Mutual Funds	4,558,000		4,558,000			2,945,000
Total Fair Value	8,323,000		8,323,000			5,170,000
Level 2 [Member]
Fair value of instruments [Abstract]
Equity Securities	0		0			0
Investments in Mutual Funds	0		0			0
Total Fair Value	0		0			0
Level 3 [Member]
Fair value of instruments [Abstract]
Equity Securities	0		0			0
Investments in Mutual Funds	0		0			0
Total Fair Value	0		0			0
Pzena International Value Fund [Member]
Schedule of Equity Method Investments [Line Items]
Net Assets	1,200,000		1,200,000
Pzena Large Cap Value Fund [Member]
Schedule of Equity Method Investments [Line Items]
Net Assets	1,200,000		1,200,000
VIEs That are Not Consolidated [Member]
Schedule of Equity Method Investments [Line Items]
Net Assets	$ 148,000,000		$ 148,000,000			$ 150,900,000

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Earnings per Share (Tables)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Summary of basic earnings per share

For the three and six months ended June 30, 2013 and 2012,  the Company’s basic earnings per share was determined as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands, except share and per share amounts)
Net Income for Basic Earnings per Share	$	1,266	$	614	$	2,435	$	1,621
Basic Weighted-Average Shares Outstanding	12,315,065		10,565,406		11,793,938		10,570,247
Basic Earnings per Share	$	0.10	$	0.06	$	0.21	$	0.15

Summary of diluted net income

For the three and six months ended June 30, 2013 and 2012, the Company’s diluted net income was determined as follows: 

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)
Net Income Attributable to Non-Controlling Interests of Pzena Investment Management, LLC	$	8,715	$	6,508	$	16,829	$	14,717
Less: Assumed Corporate Income Taxes	3,623		2,789		6,996		6,306
Assumed After-Tax Income of Pzena Investment Management, LLC	5,092		3,719		9,833		8,411
Net Income of Pzena Investment Management, Inc.	1,266		614		2,435		1,621
Diluted Net Income 1	$	6,358	$	4,333	$	12,268	$	10,032

Summary of diluted earnings per share

For the three and six months ended June 30, 2013 and 2012, the Company’s diluted earnings per share were determined as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands, except share and per share amounts)
Diluted Net Income Allocated to:
Class A Common Stock	$	6,343	$	614	$	12,239	$	9,994
Participating Class B Restricted Units	15		—		29		38
Total Diluted Net Income Attributable to Shareholders	$	6,358	$	614	$	12,268	$	10,032
Basic Weighted-Average Shares Outstanding	12,315,065		10,565,406		11,793,938		10,570,247
Dilutive Effect of Operating Company B Units	52,190,656		—		52,770,426		54,010,518
Dilutive Effect of Options 1	637,208		—		630,821		463,088
Dilutive Effect of Phantom Operating Company Class B Units & Phantom Shares of Class A Common Stock	1,232,905		—		1,174,261		105,987
Dilutive Effect of Restricted Shares of Class A Common Stock 2	29,663		—		23,494		—
Dilutive Weighted-Average Shares Outstanding	66,405,497		10,565,406		66,392,940		65,149,840
Add: Participating Restricted Operating Company Class B Units 3	157,326		—		157,326		245,487
Total Dilutive Weighted-Average Shares Outstanding	66,562,823		10,565,406		66,550,266		65,395,327
Diluted Earnings per Share	$	0.10	$	0.06	$	0.18	$	0.15

^{1 Represents the dilutive effect of options to purchase operating company Class B units and Company Class A common stock.} 

^{2 Certain restricted shares of Class A common stock granted to employees are not entitled to dividend or dividend equivalent payments until they are vested and are therefore non-participating securities and are not included in the computation of basic earnings per share. They are included in the computation of diluted earnings per share when the effect is dilutive using the treasury stock method.} 

^{3 Restricted Class B Units granted to employees have nonforfeitable rights to dividend equivalent distributions and therefore participate fully in the results of the operating company's operations from the date they are granted. They are included in the computation of diluted earnings per share using the two-class method for participating securities.}

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical) (USD $)	6 Months Ended
	Jun. 30, 2013
Statement of Stockholders' Equity [Abstract]
Class A Cash Dividends Declared and Paid (in dollars per share)	$ 0.19

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Organization

6 Months Ended

Jun. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

Organization

Pzena Investment Management, Inc. (the “Company”) functions as the sole managing member of its operating company, Pzena Investment Management, LLC (the “operating company”).   As a result, the Company: (i) consolidates the financial results of the operating company and reflects the membership interests that it does not own as a non-controlling interest in its consolidated financial statements; and (ii) recognizes income generated from its economic interest in the operating company’s net income.

The operating company is an investment adviser which is registered under the Investment Advisers Act of 1940 and is headquartered in New York, New York.  As of June 30, 2013, the operating company managed assets in a variety of value-oriented investment strategies across a wide range of market capitalizations in both U.S. and non-U.S. capital markets.

The Company, through its investment in its operating company, has consolidated the results of operations and financial condition of the following entities as of June 30, 2013:

		Operating Company's Ownership at
Legal Entity	Type of Entity (Date of Formation)	June 30, 2013
Pzena Investment Management, Pty	Australian Proprietary Limited Company (12/16/2009)	100.0	%
Pzena Investment Management Special Situations, LLC	Delaware Limited Liability Company (12/01/2010)	99.9	%
Pzena Investment Funds Trust, Pzena Large Cap Value Fund	Massachusetts Trust (11/01/2002)	0.0	%
Pzena International Value Service, a series of Pzena Investment Management International, LLC	Delaware Limited Liability Company (12/22/2003)	0.0	%

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Employee Benefit Plans

6 Months Ended

Jun. 30, 2013

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plans

Employee Benefit Plans

During 2011, the operating company implemented a Profit Sharing and Savings Plan for the benefit of substantially all employees.  The Profit Sharing and Savings Plan is a defined contribution profit sharing plan with a 401(k) deferral component.  All full-time employees and certain part-time employees who have met the age and length of service requirements are eligible to participate in the plan.  The plan allows participating employees to make elective deferrals of compensation up to the annual limits which are set by law.  The plan provides for a discretionary annual contribution by the operating company which is determined by a formula based on the salaries of eligible employees as defined by the plan.  For each of the three months ended June 30, 2013 and 2012, the expense recognized in connection with this plan was $0.2 million. For each of the six months ended June 30, 2013 and 2012, the expense recognized in connection with this plan was $0.4 million.

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Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Significant Accounting Policies

Significant Accounting Policies

Basis of Presentation:

The consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and related Securities and Exchange Commission (“SEC”) rules and regulations.  The Company’s policy is to consolidate all majority-owned subsidiaries in which it has a controlling financial interest, which includes Pzena Investment Management, Pty and Pzena Investment Management Special Situations, LLC.  The Company also consolidates variable-interest entities (“VIEs”) where the Company is deemed to be the primary beneficiary, which includes Pzena Investment Funds Trust, Pzena Large Cap Value Fund (“Pzena Large Cap Value Fund”) and Pzena International Value Service, a series of Pzena Investment Management International, LLC (“Pzena International Value Fund”).  These majority-owned subsidiaries in which the Company has a controlling financial interest and the VIEs where the Company is deemed to be the primary beneficiary are collectively referred to as “consolidated subsidiaries.”  As required by the Consolidation Topic of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), the Company also consolidates non-variable-interest entities in which it acts or acted as the general partner or managing member.  All of these entities represent or represented private investment partnerships over which the Company exercises or exercised control.  Non-controlling interests recorded on the consolidated financial statements of the Company include the non-controlling interests of the outside investors in each of these entities, as well as those of the operating company.  All significant inter-company transactions and balances have been eliminated.

The operating company is the managing member of Pzena International Value Fund.  As of February 1, 2011, as a result of a shift in the equity ownership of that series on that date, the operating company was considered the primary beneficiary of this series and, as a result, the series was consolidated with the Company as of that date.  At June 30, 2013, Pzena International Value Fund’s $1.2 million in net assets were included in the Company’s consolidated statements of financial condition.

Pzena Large Cap Value Fund is a Massachusetts Trust in which a majority of the trustees are members of the executive committee of the operating company.  A majority of the trustees do not hold equity investments in this trust.  Since the holders of the equity investments in this partnership lack a controlling financial interest in it, this entity is deemed to be a VIE.  The Company is considered the primary beneficiary of this VIE.  At June 30, 2013, the Pzena Large Cap Value Fund’s $1.2 million in net assets were included in the Company’s consolidated statements of financial condition.

All of the consolidated investment partnerships are investment companies under the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies.  The Company has retained the specialized accounting for these partnerships pursuant to the Consolidation of Partnerships and Similar Entities Subtopic of the FASB ASC.  Thus, the Company reports these investment partnerships’ investments in Investments, at Fair Value, with net realized and unrealized gains and losses reported in earnings in the consolidated statements of operations.

VIEs that are not consolidated continue to receive investment management services from the Company, and are vehicles through which the Company offers its global value and/or international (ex-U.S.) value strategies.  The total net assets of these VIEs was approximately $148.0 million and $150.9 million at June 30, 2013 and December 31, 2012, respectively.  Neither the Company nor the operating company were exposed to losses as a result of its involvement with these entities because they had no direct investment in them.

The Company records in its own equity its pro-rata share of transactions that impact the operating company’s net equity, including unit and option issuances, repurchases, and retirements.  The operating company’s pro-rata share of such transactions are recorded as adjustments to additional paid-in capital or non-controlling interests, as applicable, on the consolidated statements of financial position.

Management’s Use of Estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the period.  Actual results could differ from those estimates.

Fair Values of Financial Instruments:

The carrying amounts of all financial instruments in the consolidated statements of financial condition are presented at their fair value.

Revenue Recognition:

Revenue, comprised of advisory fee income, is recognized over the period in which advisory services are provided.  Advisory fee income includes management fees that are calculated based on percentages of assets under management (“AUM”), generally billed quarterly, either in arrears or advance, depending on their contractual terms.  Advisory fee income also includes performance fees that may be earned by the Company depending on the investment return of the assets under management.  Performance fee arrangements generally entitle the Company to participate, on a fixed-percentage basis, in any returns generated in excess of an agreed-upon benchmark.  The Company’s participation percentage in such return differentials is then multiplied by AUM to determine the performance fees earned.   In general, returns are calculated on an annualized basis over the contract’s measurement period, which usually extends to three years.  Performance fees are generally payable annually.  Following the preferred method identified in the Revenue Recognition Topic of the FASB ASC, such performance fee income is recorded at the conclusion of the contractual performance period, when all contingencies are resolved.  For each of the three and six months ended June 30, 2013, the Company recognized approximately $0.1 million in performance fee income.  The Company did not recognize any performance fee income for the three months ended June 30, 2012. Approximately $0.3 million in such fees were recognized for the six months ended June 30, 2012.

Cash and Cash Equivalents:

At June 30, 2013 and December 31, 2012, Cash and Cash Equivalents was $25.7 million and $32.6 million, respectively.  The Company considers all money market funds and highly-liquid debt instruments with an original maturity of three months or less at the time of purchase to be cash equivalents.  The Company maintains its cash in bank deposits and other accounts whose balances often exceed federally insured limits.

Interest on cash and cash equivalents is recorded as interest income on an accrual basis in the consolidated statements of operations.

Restricted Cash:

The Company maintained compensating balances of $1.0 million at June 30, 2013 and December 31, 2012 as collateral for a letter of credit issued by a third party in lieu of a cash security deposit, as required by the Company’s lease for its New York office space.  Such amounts are recorded in Restricted Cash in the consolidated statements of financial condition.

Due to/from Broker:

Due to/from Broker consists primarily of amounts payable/receivable for unsettled securities transactions held/initiated at the clearing brokers of the Company’s consolidated subsidiaries.

Investments, at Fair Value:

Investments, at Fair Value represents the securities held by the Company and its consolidated subsidiaries, as well as investments in mutual funds.  The Company’s investments in third-party mutual funds are held to satisfy the Company’s obligations under its deferred compensation program.  Dividends associated with the investments of the Company’s consolidated subsidiaries are recorded as dividend income on an ex-dividend basis in the consolidated statement of operations.

All such investments are recorded at fair value, with net realized and unrealized gains and losses reported in earnings in the consolidated statements of operations.

The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.  The Fair Value Measurements and Disclosures Topic of the FASB ASC also establishes a framework for measuring fair value and a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability.  Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation hierarchy contains three levels: (i) valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets (Level 1); (ii) valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets, and other observable inputs directly or indirectly related to the asset or liability being measured (Level 2); and (iii) valuation inputs are unobservable and significant to the fair value measurement (Level 3).

The Company’s fair value measurements relate to its consolidated investments in equity securities, which are exchange-traded securities with quoted prices in active markets, and its investments in mutual funds.  The fair value measurements of the equity securities and investments in mutual funds have been classified as Level 1.

The following table presents these instruments’ fair value at June 30, 2013:

	Level 1		Level 2		Level 3
	(in thousands)
Assets:
Equity Securities	$	3,765	$	—	$	—
Investments in Mutual Funds	4,558		—		—
Total Fair Value	$	8,323	$	—	$	—

The following table presents these instruments’ fair value at December 31, 2012:

	Level 1		Level 2		Level 3
	(in thousands)
Assets:
Equity Securities	$	2,225	$	—	$	—
Investments in Mutual Funds	2,945		—		—
Total Fair Value	$	5,170	$	—	$	—

Securities Valuation:

Investments in equity securities for which market quotations are available are valued at the last reported price or closing price on the primary market or exchange on which they trade.  If no reported equity sales occurred on the valuation date, equity investments are valued at the bid price.  Investments in mutual funds are valued at the closing net asset value per share of the fund on the day of valuation.  Transactions are recorded on a trade date basis.

The net realized gain or loss on sales of securities and investments in mutual funds is determined on a specific identification basis and is included in Net Realized and Unrealized Gain/(Loss) from Investments in the consolidated statements of operations.

Concentrations of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, amounts due from brokers, and advisory fees receivable.  The Company maintains its cash and cash equivalents in bank deposits and other accounts whose balances often exceed federally insured limits.

The concentration of credit risk with respect to advisory fees receivable is generally limited due to the short payment terms extended to clients by the Company.  On a periodic basis, the Company evaluates its advisory fees receivable and establishes an allowance for doubtful accounts, if necessary, based on a history of past write-offs and collections and current credit conditions.  At June 30, 2013 and December 31, 2012, no allowance for doubtful accounts was deemed necessary.

Property and Equipment:

Property and equipment is carried at cost, less accumulated depreciation and amortization.  Depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets, which range from three to seven years.  Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvements or the remaining lease term.

Business Segments:

The Company views its operations as comprising one operating segment.

Income Taxes:

The Company is a “C” corporation under the Internal Revenue Code, and thus liable for federal, state, and local taxes on the income derived from its economic interest in its operating company.  The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes.  It has not made a provision for federal or state income taxes because it is the individual responsibility of each of the operating company’s members (including the Company) to separately report their proportionate share of the operating company’s taxable income or loss.  Similarly, the income of the Company’s consolidated subsidiaries is not subject to income taxes, since it is allocated to each partnership’s individual partners.  The operating company has made a provision for New York City Unincorporated Business Tax (“UBT”).

The Company and its consolidated subsidiaries account for all federal, state, and local taxation pursuant to the asset and liability method, which requires deferred income tax assets and liabilities to be recorded for temporary differences between the carrying amount and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the temporary differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount more likely than not to be realized.  At June 30, 2013, the Company had a $58.2 million valuation allowance against deferred tax assets recorded as part of the Company’s initial public offering and the subsequent exchanges of Class B units for shares of its Class A common stock.  At December 31, 2012, the Company had a $59.9 million valuation allowance against these deferred tax assets.  The income tax expense, or benefit, is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities. The Company records its deferred tax liabilities as a component of other liabilities in the consolidated statements of financial condition.

Foreign Currency:

Investment securities and other assets and liabilities denominated in foreign currencies are remeasured into U.S. dollar amounts at the date of valuation.  Purchases and sales of investment securities, and income and expense items denominated in foreign currencies, are remeasured into U.S. dollar amounts on the respective dates of such transactions.

The Company does not isolate the portion of the results of its operations resulting from the impact of fluctuations in foreign exchange rates on its non-U.S. investments.  Such fluctuations are included in Net Realized and Unrealized Gain/(Loss) from Investments in the consolidated statements of operations.

Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Company’s books and the U.S. dollar equivalent of the amounts actually received or paid.  Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities resulting from changes in exchange rates.

The functional currency of the Company is the United States Dollar.  The functional currency of the Company’s representative office in Australia is the Australian Dollar.  Assets and liabilities of this office are translated at the spot rate in effect at the applicable reporting date, and the consolidated statements of operations are translated at the average exchange rates in effect during the applicable period.  For the three and six months ended June 30, 2013 and 2012, the Company did not record any accumulated other comprehensive income.

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Income Taxes (Details) (USD $)	1 Months Ended	3 Months Ended						6 Months Ended					1 Months Ended
	Mar. 31, 2013	Jun. 30, 2013		Mar. 31, 2013	Jun. 30, 2012		Mar. 31, 2012	Jun. 30, 2013		Jun. 30, 2012		Dec. 31, 2012	Mar. 20, 2013 Class B unit exchange for Company Class A common stock [Member]	Aug. 31, 2012 Class B unit exchange for Company Class A common stock [Member]
Current Provision:
Unincorporated Business Taxes		$ 706,000	[1]		$ 578,000	[1]		$ 702,000	[1]	$ 1,169,000	[1]
Local Corporate Tax		0			0			0		0
State Corporate Tax		0			0			0		0
Federal Corporate Tax		0			0			0		0
Total Current Provision		706,000			578,000			702,000		1,169,000
Deferred Provision:
Unincorporated Business Taxes		(36,000)	[1]		(27,000)	[1]		22,000	[1]	15,000	[1]
Local Corporate Tax		74,000			62,000			157,000		139,000
State Corporate Tax		129,000			110,000			276,000		246,000
Federal Corporate Tax		631,000			365,000			1,134,000		834,000
Total Deferred Provision		798,000			510,000			1,589,000		1,234,000
Valuation Allowance, Deferred Tax Asset, Change in Amount		556,000		(556,000)	(446,000)		1,069,000	1,781,000		623,000
Net Adjustment Related to Change in Effective Tax Rate		(286,000)			0			(286,000)		0
Total Income Tax Expense		1,234,000			1,534,000			796,000		1,780,000
Tax Benefit Associated with the Amendment of Prior Year Tax Returns	600,000
Section 754 election tax deduction period (in years)								15 years
Accrued Interest Expense, and Penalties Expense Associated with Uncertain Tax Positions		0			0			0		0
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued		0						0				0
Initial Deferred Tax Assets		68,700,000						68,700,000
Cash Savings Generated By This Election Will Be Distributed To Selling And Converting Shareholders Upon Realization (in hundreth)		85.00%						85.00%
Share exchange valuation allowance [Line Items]
Number of class B units exchanged for equivalent class A common shares (in shares)													1,328,334	722,521
Initial deferred tax assets													5,900,000	2,200,000
Liability to Selling and Converting Shareholders													5,000,000	1,900,000
Valuation allowance established													5,100,000	1,900,000
Change In Liability To Selling And Converting Shareholders due to stock exchange													4,400,000	1,600,000
Income Tax Additional Disclosure [Abstract]
Change in Liability to Selling and Converting Shareholders		(229,000)		(200,000)	315,000		(1,000,000)	(1,268,000)		(658,000)
Deferred tax asset	10,904,000	10,372,000		10,904,000	8,278,000		9,239,000	10,372,000		8,278,000
Section 754 [Roll Forward]
Beginning balance		70,097,000		65,069,000	65,401,000		66,224,000	65,069,000		66,224,000
Deferred Tax (Expense)/Benefit		(905,000)		(907,000)	(835,000)		(823,000)
Change in Effective Rate		5,272,000
Unit Exchange				5,935,000
Change in Valuation Allowance		0		0	0		0
Ending balance	70,097,000	63,920,000		70,097,000	64,566,000		65,401,000	63,920,000		64,566,000
Deferred Tax Assets Other [Roll Forward]
Beginning balance		4,639,000		4,536,000	3,819,000		3,661,000	4,536,000		3,661,000
Deferred Tax (Expense)/Benefit		103,000		103,000	320,000		158,000
Unit Exchange				0
Change in Effective Rate		(105,000)
Change in Valuation Allowance		0		0	0		0
Ending balance	4,639,000	4,637,000		4,639,000	4,139,000		3,819,000	4,637,000		4,139,000
Deferred Tax Assets Valuation Allowance [Roll Forward]
Beginning balance		(63,832,000)		(59,917,000)	(59,981,000)		(61,050,000)	(59,917,000)		(61,050,000)
Deferred Tax (Expense)/Benefit		0		0	0		0
Unit Exchange				(5,140,000)
Change in Valuation Allowance		556,000		1,225,000
Change in Effective Rate		(5,091,000)
Ending balance	(63,832,000)	(58,185,000)		(63,832,000)	(60,427,000)		(59,981,000)	(58,185,000)		(60,427,000)
Deferred tax assets [Roll Forward]
Beginning balance		10,904,000		9,688,000	9,239,000		8,835,000	9,688,000		8,835,000
Deferred Tax (Expense)/Benefit		(802,000)		(804,000)	(515,000)		(665,000)
Unit Exchange				795,000
Change in Valuation Allowance		556,000		1,225,000
Ending balance	10,904,000	10,372,000		10,904,000	8,278,000		9,239,000	10,372,000		8,278,000
Deferred tax liabilities [Roll Forward]
Deferred tax liabilities Beginning balance		(45,000)		(59,000)	(72,000)		(13,000)	(59,000)		(13,000)
Deferred Tax Expense		5,000		14,000			(59,000)	5,000
Deferred tax liabilities ending balance	$ (45,000)	$ (40,000)		$ (45,000)	$ (67,000)		$ (72,000)	$ (40,000)		$ (67,000)

[1] During March 2013, the operating company recognized a $0.6 million tax benefit associated with the amendment of prior year tax returns to change the methodology for state and local receipts.

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2013

Property, Plant and Equipment [Abstract]

Property and equipment

Property and Equipment, Net of Accumulated Depreciation is comprised of the following:

	As of
	June 30, 2013			December 31, 2012
	(in thousands)
Leasehold Improvements	$	1,219		$	1,219
Computer Hardware	987			982
Furniture and Fixtures	788			788
Office Equipment	271			271
Computer Software	214			214
Total	3,479			3,474
Less: Accumulated Depreciation and Amortization	(2,772		)	(2,695		)
Total	$	707		$	779

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Compensation and Benefits (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013		Jun. 30, 2012		Dec. 31, 2012
Compensation and benefits expense [Abstract]
Cash Compensation and Other Benefits	$ 7,689,000	$ 7,347,000	$ 16,077,000		$ 14,834,000
Non-Cash Compensation	1,225,000	665,000	2,445,000		1,351,000
Total Compensation and Benefits Expense	8,914,000	8,012,000	18,522,000		16,185,000
Non-cash compensation awards granted [Abstract]
Liability associated with deferred compensation investment	1,039,000		1,039,000				1,327,000
Unrecorded compensation expense	17,000,000		17,000,000				17,900,000
Delayed-vesting cash awards granted	0	0	0		0
Awards vesting in 2013	1,000,000		1,000,000
Deferred Compensation Arrangement Grants Amount Maturing More Than 12 Months Less Than 25 Months	500,000		500,000
Director [Member] | Phantom Shares of Class A common stock [Member]
Non-cash compensation awards granted [Abstract]
Defer compensation percentage of compensation directors elected (in hundredths)			100.00%
Shares outstanding (in shares)	203,052		203,052				147,500
2007 Equity Incentive Plan [Member] | Restricted Shares of Class A Common Stock [Member]
Non-cash compensation awards granted [Abstract]
Awarded (in shares)			100,000		0
Fair Value, Awarded (in dollars per share)			$ 4.41	[1]	$ 0	[1]
2006 Equity Incentive Plan [Member] | Restricted Class B Units [Member]
Non-cash compensation awards granted [Abstract]
Awarded (in shares)			18,517		53,116
Fair Value, Awarded (in dollars per share)			$ 5.40	[1]	$ 4.33	[1]
Bonus Plan [Member]
Non-cash compensation awards granted [Abstract]
Liability associated with deferred compensation investment	$ 1,039,000		$ 1,039,000				$ 1,327,000
Bonus Plan [Member] | Deferred Compensation Phantom Operating Company Class B Units [Member]
Non-cash compensation awards granted [Abstract]
Vesting period for units (in years)			4 years

[1] Represents the grant date estimated fair value per share or unit.

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Investments, at Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Cost [Member]
Assets, Fair Value Disclosure [Abstract]
Equity Securities	$ 3,397	$ 1,988
Investments in Mutual Funds	3,983	2,561
Total Fair Value	7,380	4,549
Unrealized Gain/(Loss) [Member]
Assets, Fair Value Disclosure [Abstract]
Equity Securities	368	237
Investments in Mutual Funds	575	384
Total Fair Value	943	621
Fair Value [Member]
Assets, Fair Value Disclosure [Abstract]
Equity Securities	3,765	2,225
Investments in Mutual Funds	4,558	2,945
Total Fair Value	$ 8,323	$ 5,170

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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
ASSETS
Valuation allowance on deferred tax assets	$ 58,185	$ 59,917
Property and equipment, accumulated depreciation	$ 2,772	$ 2,695
Equity:
Preferred Stock, Par Value (in dollars per share)	$ 0.01	$ 0.01
Preferred Stock, Shares Authorized (in shares)	200,000,000	200,000,000
Preferred Stock, Shares Outstanding (in shares)	0	0
Class A [Member]
Equity:
Common Stock, Par Value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, Shares Authorized (in shares)	750,000,000	750,000,000
Common Stock, Shares Issued (in shares)	12,210,592	11,149,941
Common Stock, Shares Outstanding (in shares)	12,210,592	11,149,941
Class B [Member]
Equity:
Common Stock, Par Value (in dollars per share)	$ 0.000001	$ 0.000001
Common Stock, Shares Authorized (in shares)	750,000,000	750,000,000
Common Stock, Shares Issued (in shares)	52,190,656	53,482,324
Common Stock, Shares Outstanding (in shares)	52,190,656	53,482,324

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Non-Controlling Interests

6 Months Ended

Jun. 30, 2013

Noncontrolling Interest [Abstract]

Non-Controlling Interests

Non-Controlling Interests

Net Income Attributable to Non-Controlling Interests in the operations of the Company’s operating company and consolidated subsidiaries is comprised of the following:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2013		2012			2013		2012
	(in thousands)
Non-Controlling Interests of Pzena Investment Management, LLC	$	8,715	$	6,508		$	16,829	$	14,717
Non-Controlling Interests of Consolidated Investment Partnerships	311		(116		)	719		353
Net Income Attributable to Non-Controlling Interests	$	9,026	$	6,392		$	17,548	$	15,070

Distributions to non-controlling interests represent tax allocations and dividend equivalents paid to the members of the operating company, as well as withdrawals made by the Company’s consolidated subsidiaries.

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (USD $) In Thousands, except Share data, unless otherwise specified	Total USD ($)	Class A [Member]	Class B [Member]	Common Stock [Member] Class A [Member] USD ($)	Common Stock [Member] Class B [Member]	Additional Paid-In Capital [Member] USD ($)	Retained Earnings [Member] USD ($)	Non-Controlling Interests [Member] USD ($)
Balance at Dec. 31, 2012	$ 47,966			$ 111		$ 11,765	$ 2,693	$ 33,397
Balance (in shares) at Dec. 31, 2012		11,149,941	53,482,324	11,149,941	53,482,324
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Unit Conversion	119			13		746		(640)
Unit Conversion (in shares)				(1,328,334)	(1,328,334)
Amortization of Non-Cash Compensation	1,481					270		1,211
Amortization of Non-Cash Compensation (in shares)				7,414	36,666
Directors' Shares	150					27		123
Net Income	19,983						2,435	17,548
Repurchase and Retirement of Class A Common Stock	(1,684)			(3)		(1,681)
Repurchase and Retirement of Class A Common Stock (in shares)		(275,097)		(275,097)
Repurchase and Retirement of Class B Unit Options	(71)					(14)		(57)
Class A Cash Dividends Declared and Paid ($0.19 per share)	(2,140)						(2,140)
Distributions to Non-Controlling Interests	(21,809)						0	(21,809)
Other	0					(178)		178
Balance at Jun. 30, 2013	43,995			121		10,935	2,988	29,951
Balance (in shares) at Jun. 30, 2013		12,210,592	52,190,656	12,210,592	52,190,656
Balance at Mar. 31, 2013
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	10,292
Repurchase and Retirement of Class A Common Stock (in shares)		(165,562)
Balance at Jun. 30, 2013	$ 43,995
Balance (in shares) at Jun. 30, 2013		12,210,592	52,190,656

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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
ASSETS
Cash and Cash Equivalents	$ 25,675	$ 32,645
Restricted Cash	1,031	1,030
Due from Broker	85	22
Advisory Fees Receivable	18,374	14,626
Investments, at Fair Value	8,323	5,170
Receivable from Related Parties	131	83
Other Receivables	536	51
Prepaid Expenses and Other Assets	666	585
Deferred Tax Asset, Net of Valuation Allowance of $58,185 and $59,917 in 2013 and 2012, respectively	10,372	9,688
Property and Equipment, Net of Accumulated Depreciation of $2,772 and $2,695 in 2013 and 2012, respectively	707	779
TOTAL ASSETS	65,900	64,679
Liabilities:
Accounts Payable and Accrued Expenses	10,059	4,305
Due to Broker	68	23
Liability to Selling and Converting Shareholders	9,602	9,656
Lease Liability	991	1,203
Deferred Compensation Liability	1,039	1,327
Other Liabilities	146	199
TOTAL LIABILITIES	21,905	16,713
Equity:
Preferred Stock (Par Value $0.01; 200,000,000 Shares Authorized; None Outstanding)	0	0
Additional Paid-In Capital	10,935	11,765
Retained Earnings	2,988	2,693
Total Pzena Investment Mangement, Inc.'s Equity	14,044	14,569
Non-Controlling Interests	29,951	33,397
TOTAL EQUITY	43,995	47,966
TOTAL LIABILITIES AND EQUITY	65,900	64,679
Class A [Member]
Equity:
Class A Common Stock (Par Value $0.01; 750,000,000 Shares Authorized; 12,210,592 and 11,149,941 Shares Issued and Outstanding in 2013 and 2012, respectively); Class B Common Stock (Par Value $0.000001; 750,000,000 Shares Authorized; 52,190,656 and 53,482,324 Shares Issued and Outstanding in 2013 and 2012, respectively)	121	111
Class B [Member]
Equity:
Class A Common Stock (Par Value $0.01; 750,000,000 Shares Authorized; 12,210,592 and 11,149,941 Shares Issued and Outstanding in 2013 and 2012, respectively); Class B Common Stock (Par Value $0.000001; 750,000,000 Shares Authorized; 52,190,656 and 53,482,324 Shares Issued and Outstanding in 2013 and 2012, respectively)	$ 0	$ 0

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Income Taxes (Tables)

6 Months Ended

Jun. 30, 2013

Income Tax Disclosure [Abstract]

Components of income tax

The components of the income tax expense are as follows:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
	(in thousands)
Current Provision:
Unincorporated Business Taxes 1	$	706		$	578		$	702		$	1,169
Local Corporate Tax	—			—			—			—
State Corporate Tax	—			—			—			—
Federal Corporate Tax	—			—			—			—
Total Current Provision	$	706		$	578		$	702		$	1,169
Deferred Provision:
Unincorporated Business Taxes 1	$	(36	)	$	(27	)	$	22		$	15
Local Corporate Tax	74			62			157			139
State Corporate Tax	129			110			276			246
Federal Corporate Tax	631			365			1,134			834
Total Deferred Provision	$	798		$	510		$	1,589		$	1,234
Change in Valuation Allowance	(556		)	446			(1,781		)	(623		)
Net Adjustment Related to Change in Effective Tax Rate	$	286		$	—		$	286		$	—
Total Income Tax Expense	$	1,234		$	1,534		$	796		$	1,780

^{1 During March 2013, the operating company recognized a $0.6 million tax benefit associated with the amendment of prior year tax returns to change the methodology for state and local receipts.} 

Deferred tax assets and liabilities

The change in the Company’s deferred tax assets, net of valuation allowance, for the three and six months ended June 30, 2013 is summarized as follows:

	Section 754			Other			Valuation Allowance			Total
	(in thousands)
Balance at December 31, 2012	$	65,069		$	4,536		$	(59,917	)	$	9,688
Deferred Tax (Expense)/Benefit	(907		)	103			—			(804		)
Unit Exchange	5,935			—			(5,140		)	795
Change in Valuation Allowance	—			—			1,225			1,225
Balance at March 31, 2013	$	70,097		$	4,639		$	(63,832	)	$	10,904
Deferred Tax (Expense)/Benefit	(905		)	103			—			(802		)
Change in Effective Rate	(5,272		)	(105		)	5,091			(286		)
Change in Valuation Allowance	—			—			556			556
Balance at June 30, 2013	$	63,920		$	4,637		$	(58,185	)	$	10,372

The change in the Company’s deferred tax liabilities, which is included in other liabilities on the Company’s consolidated statements of financial condition, for the three and six months ended June 30, 2013, is summarized as follows:

	Total
	(in thousands)
Balance at December 31, 2012	$	(59	)
Deferred Tax Expense	14
Balance at March 31, 2013	$	(45	)
Deferred Tax Expense	5
Balance at June 30, 2013	$	(40	)

The change in the Company’s deferred tax assets, net of valuation allowance, for the three and six months ended June 30, 2012 is summarized as follows:

	Section 754			Other		Valuation Allowance			Total
	(in thousands)
Balance at December 31, 2011	$	66,224		$	3,661	$	(61,050	)	$	8,835
Deferred Tax (Expense)/Benefit	(823		)	158		—			(665		)
Change in Valuation Allowance	—			—		1,069			1,069
Balance at March 31, 2012	$	65,401		$	3,819	$	(59,981	)	$	9,239
Deferred Tax (Expense)/Benefit	(835		)	320		—			(515		)
Change in Valuation Allowance	—			—		(446		)	(446		)
Balance at June 30, 2012	$	64,566		$	4,139	$	(60,427	)	$	8,278

The change in the Company’s deferred tax liabilities for the three and six months ended June 30, 2012 is summarized as follows:

	Total
	(in thousands)
Balance at December 31, 2011	$	(13	)
Deferred Tax Benefit	(59		)
Balance at March 31, 2012	$	(72	)
Deferred Tax Expense	5
Balance at June 30, 2012	$	(67	)

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Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Summary of fair value assets

The following table presents these instruments’ fair value at June 30, 2013:

	Level 1		Level 2		Level 3
	(in thousands)
Assets:
Equity Securities	$	3,765	$	—	$	—
Investments in Mutual Funds	4,558		—		—
Total Fair Value	$	8,323	$	—	$	—

The following table presents these instruments’ fair value at December 31, 2012:

	Level 1		Level 2		Level 3
	(in thousands)
Assets:
Equity Securities	$	2,225	$	—	$	—
Investments in Mutual Funds	2,945		—		—
Total Fair Value	$	5,170	$	—	$	—

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Related Party Transactions (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended						3 Months Ended		6 Months Ended
	Jun. 30, 2013 VIEs That are Not Consolidated [Member]	Jun. 30, 2012 VIEs That are Not Consolidated [Member]	Jun. 30, 2013 VIEs That are Not Consolidated [Member]	Jun. 30, 2012 VIEs That are Not Consolidated [Member]	Jun. 30, 2013 International Investment Company [Member]	Dec. 31, 2012 International Investment Company [Member]	Jun. 30, 2013 Employees [Member]	Dec. 31, 2012 Employees [Member]	Jun. 30, 2013 Company's Executive Officers and Other Employees [Member]	Jun. 30, 2012 Company's Executive Officers and Other Employees [Member]	Jun. 30, 2013 Company's Executive Officers and Other Employees [Member]	Jun. 30, 2012 Company's Executive Officers and Other Employees [Member]
Related Party Transaction [Line Items]
Investment advisory fees	$ 0.3	$ 0.4	$ 0.7	$ 0.8
Receivables from related party					0.1	0.1
Loans to employees							0.1	0.1
Investment advisory fees waived									0.1	0.1	0.2	0.2
Administrative fees paid - less than amount									$ 0.1	$ 0.1	$ 0.1	$ 0.1

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Shareholders' Equity (Details) (USD $) In Millions, except Share data, unless otherwise specified	6 Months Ended	3 Months Ended		6 Months Ended			0 Months Ended	6 Months Ended		1 Months Ended
	Jun. 30, 2013	Jun. 30, 2013 Common Class A [Member]	Jun. 30, 2012 Common Class A [Member]	Jun. 30, 2013 Common Class A [Member]	Jun. 30, 2012 Common Class A [Member]	Dec. 31, 2012 Common Class A [Member]	Apr. 30, 2013 Common Class B [Member]	Jun. 30, 2013 Common Class B [Member] vote	Dec. 31, 2012 Common Class B [Member]	Mar. 20, 2013 Class B unit exchange for Company Class A common stock [Member]	Aug. 31, 2012 Class B unit exchange for Company Class A common stock [Member]
Class of Stock [Line Items]
Economic interest held in company by class of stock (in hundredths)		18.90%		18.90%		17.20%		81.10%	82.80%
Par value (in dollars per share)		$ 0.01		$ 0.01		$ 0.01		$ 0.000001	$ 0.000001
Voting rights								5
Percentage of stock holding that will entitle holders to one vote (in hundredths)								20.00%
Voting rights when class of stock constitutes less than 20% of all shares outstanding (in votes)								1
Percentage of outstanding shares that represents rights of holders to receive distribution (in hundredths)		100.00%		100.00%
Number of class B units exchanged for equivalent class A common shares (in shares)										1,328,334	722,521
Unit Options Repurchased and Retired During Period (in shares)							55,000
Amount authorized under stock repurchase program	$ 10
Common stock purchased and retired (in shares)		165,562	28,454	275,097	28,454
Purchased under repurchase authorization at an average price per share (in dollars per share)		$ 6.14	$ 4.39	$ 6.12	$ 4.39

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Non-Controlling Interests (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Noncontrolling Interest [Line Items]
Net Income Attributable to Non-Controlling Interests	$ 9,026	$ 6,392	$ 17,548	$ 15,070
Pzena Investment Management, LLC [Member]
Noncontrolling Interest [Line Items]
Net Income Attributable to Non-Controlling Interests	8,715	6,508	16,829	14,717
Consolidated Subsidiaries [Member]
Noncontrolling Interest [Line Items]
Net Income Attributable to Non-Controlling Interests	$ 311	$ (116)	$ 719	$ 353

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Shareholders' Equity

6 Months Ended

Jun. 30, 2013

Stockholders' Equity Note [Abstract]

Shareholders' Equity

Shareholders’ Equity

The Company functions as the sole managing member of the operating company.  As a result, the Company: (i) consolidates the financial results of the operating company and reflects the membership interest in it that it does not own as a non-controlling interest in its consolidated financial statements; and (ii) recognizes income generated from its economic interest in the operating company’s net income.  Class A and Class B units of the operating company have the same economic rights per unit.  As of June 30, 2013, the holders of Class A common stock (through the Company) and the holders of Class B units of the operating company held approximately 18.9% and 81.1%, respectively, of the economic interests in the operations of the business. As of December 31, 2012, the holders of Class A common stock (through the Company) and the holders of Class B units of the operating company held approximately 17.2% and 82.8%, respectively, of the economic interests in the operations of the business.

Each Class B unit of the operating company has a corresponding share of the Company’s Class B common stock, par value $0.000001 per share.  Each share of the Company’s Class B common stock entitles its holder to five votes, until the first time that the number of shares of Class B common stock outstanding constitutes less than 20% of the number of all shares of the Company’s common stock outstanding.  From this time and thereafter, each share of the Company’s Class B common stock entitles its holder to one vote.  When a Class B unit is exchanged for a share of the Company’s Class A common stock or forfeited, a corresponding share of the Company’s Class B common stock will automatically be redeemed and cancelled.  Conversely, to the extent that the Company causes the operating company to issue additional Class B units to employees pursuant to its equity incentive plan, these additional holders of Class B units would be entitled to receive a corresponding number of shares of the Company’s Class B common stock (including if the Class B units awarded are subject to vesting).

All holders of the Company’s Class B common stock have entered into a stockholders’ agreement, pursuant to which they agreed to vote all shares of Class B common stock then held by them, and acquired in the future, together on all matters submitted to a vote of the common stockholders.

The outstanding shares of the Company’s Class A common stock represent 100% of the rights of the holders of all classes of the Company’s capital stock to receive distributions, except that holders of Class B common stock will have the right to receive the class’s par value upon the Company’s liquidation, dissolution or winding up.

Pursuant to the operating agreement of the operating company, each vested Class B unit is exchangeable for a share of the Company’s Class A common stock, subject to certain exchange timing and volume limitations.

On March 20, 2013, and August 31, 2012, certain of the operating company’s members exchanged an aggregate of 1,328,334 and 722,521, respectively, of their Class B units for an equivalent number of shares of Company Class A common stock.  These acquisitions of additional operating company membership interests were treated as reorganizations of entities under common control as required by the Business Combinations Topic of the FASB ASC.

On April 30, 2013, the Company repurchased and retired 55,000 options to purchase Class B units.

The Company’s current share repurchase program was announced on April 24, 2012.  The Board of Directors authorized the Company to repurchase an aggregate of $10 million of the Company’s outstanding Class A common stock and the operating company’s Class B units on the open market and in private transactions in accordance with applicable securities laws.  The timing, number and value of common shares and units repurchased are subject to the Company’s discretion.  The Company’s share repurchase program is not subject to an expiration date and may be suspended, discontinued, or modified at any time, for any reason.

During the three months ended June 30, 2013 and 2012, the Company purchased and retired 165,562 and 28,454 shares of Class A common stock, respectively, under the current repurchase authorization at an average price per share of $6.14 and $4.39, respectively.   During the six months ended June 30, 2013 and 2012, the Company purchased and retired 275,097 and 28,454 shares of Class A common stock, respectively, under the current repurchase authorization at an average price per share of $6.12 and $4.39, respectively.   The Company records the repurchase of shares and units at cost based on the trade date of the transaction.

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Organization (Details)	6 Months Ended
	Jun. 30, 2013
Pzena Investment Management, Pty [Member]
Entity Information [Line Items]
Type of Entity (Date of Formation)	Australian Proprietary Limited Company (12/16/2009)
Operating company's ownership at end of period (in hundredths)	100.00%
Pzena Investment Management Special Situations, LLC [Member]
Entity Information [Line Items]
Type of Entity (Date of Formation)	Delaware Limited Liability Company (12/01/2010)
Operating company's ownership at end of period (in hundredths)	99.90%
Pzena Investment Funds Trust, Pzena Large Cap Value Fund [Member]
Entity Information [Line Items]
Type of Entity (Date of Formation)	Massachusetts Trust (11/01/2002)
Operating company's ownership at end of period (in hundredths)	0.00%
Pzena International Value Service, a series of the Pzena Investment Management International, LLC [Member]
Entity Information [Line Items]
Type of Entity (Date of Formation)	Delaware Limited Liability Company (12/22/2003)
Operating company's ownership at end of period (in hundredths)	0.00%

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Property and Equipment

6 Months Ended

Jun. 30, 2013

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment

Property and Equipment, Net of Accumulated Depreciation is comprised of the following:

	As of
	June 30, 2013			December 31, 2012
	(in thousands)
Leasehold Improvements	$	1,219		$	1,219
Computer Hardware	987			982
Furniture and Fixtures	788			788
Office Equipment	271			271
Computer Software	214			214
Total	3,479			3,474
Less: Accumulated Depreciation and Amortization	(2,772		)	(2,695		)
Total	$	707		$	779

Depreciation is included in general and administrative expense and totaled approximately $0.1 million for each of the three and six months ended June 30, 2013 and 2012.

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Earnings per Share

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Earnings per Share

Earnings per Share

Basic earnings per share is computed by dividing the Company’s net income attributable to its common stockholders by the weighted average number of shares outstanding during the reporting period.  For the three and six months ended June 30, 2013 and 2012,  the Company’s basic earnings per share was determined as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands, except share and per share amounts)
Net Income for Basic Earnings per Share	$	1,266	$	614	$	2,435	$	1,621
Basic Weighted-Average Shares Outstanding	12,315,065		10,565,406		11,793,938		10,570,247
Basic Earnings per Share	$	0.10	$	0.06	$	0.21	$	0.15

Diluted earnings per share adjusts this calculation to reflect the impact of all outstanding operating company membership units, phantom operating company Class B units, phantom Class A common stock, outstanding operating company Class B unit options, options to purchase Class A common stock, and restricted Class A common stock, to the extent they would have a dilutive effect on net income per share for the reporting period.  Net income for diluted earnings per share generally assumes all outstanding operating company membership units are converted into Company stock at the beginning of the reporting period and the resulting change to Company net income associated with its increased interest in the operating company is taxed at the Company’s effective tax rate, exclusive of adjustments associated with both the valuation allowance and the liability to selling and converting shareholders.

For the three and six months ended June 30, 2013 and 2012, the Company’s diluted net income was determined as follows: 

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)
Net Income Attributable to Non-Controlling Interests of Pzena Investment Management, LLC	$	8,715	$	6,508	$	16,829	$	14,717
Less: Assumed Corporate Income Taxes	3,623		2,789		6,996		6,306
Assumed After-Tax Income of Pzena Investment Management, LLC	5,092		3,719		9,833		8,411
Net Income of Pzena Investment Management, Inc.	1,266		614		2,435		1,621
Diluted Net Income 1	$	6,358	$	4,333	$	12,268	$	10,032

^{1 Since the assumed incremental income results in an increase in per share income for the three months ended June 30, 2012, the assumed effects of the conversion of operating company Class B units, options to purchase operating company units, options to purchase Class A common stock, and phantom operating company units are excluded from the the calculation of diluted income per share.} 

Under the two-class method of computing diluted earnings per share, diluted earnings per share is calculated by dividing net income for diluted earnings per share by the weighted average number of common shares outstanding during the period, plus the dilutive effect of any potential common shares outstanding during the period using the more dilutive of the treasury method or two-class method.  The two-class method includes an earnings allocation formula that determines earnings per share for each participating security according to dividends declared and undistributed earnings for the period.  The Company’s net income for diluted earnings per share is reduced by the amount allocated to participating restricted Class B units for purposes of calculating earnings per share.  Dividend equivalent distributions paid per share on the operating company’s unvested restricted Class B units are equal to the dividends paid per Company Class A common stock.

For the three and six months ended June 30, 2013 and 2012, the Company’s diluted earnings per share were determined as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands, except share and per share amounts)
Diluted Net Income Allocated to:
Class A Common Stock	$	6,343	$	614	$	12,239	$	9,994
Participating Class B Restricted Units	15		—		29		38
Total Diluted Net Income Attributable to Shareholders	$	6,358	$	614	$	12,268	$	10,032
Basic Weighted-Average Shares Outstanding	12,315,065		10,565,406		11,793,938		10,570,247
Dilutive Effect of Operating Company B Units	52,190,656		—		52,770,426		54,010,518
Dilutive Effect of Options 1	637,208		—		630,821		463,088
Dilutive Effect of Phantom Operating Company Class B Units & Phantom Shares of Class A Common Stock	1,232,905		—		1,174,261		105,987
Dilutive Effect of Restricted Shares of Class A Common Stock 2	29,663		—		23,494		—
Dilutive Weighted-Average Shares Outstanding	66,405,497		10,565,406		66,392,940		65,149,840
Add: Participating Restricted Operating Company Class B Units 3	157,326		—		157,326		245,487
Total Dilutive Weighted-Average Shares Outstanding	66,562,823		10,565,406		66,550,266		65,395,327
Diluted Earnings per Share	$	0.10	$	0.06	$	0.18	$	0.15

^{1 Represents the dilutive effect of options to purchase operating company Class B units and Company Class A common stock.} 

^{2 Certain restricted shares of Class A common stock granted to employees are not entitled to dividend or dividend equivalent payments until they are vested and are therefore non-participating securities and are not included in the computation of basic earnings per share. They are included in the computation of diluted earnings per share when the effect is dilutive using the treasury stock method.} 

^{3 Restricted Class B Units granted to employees have nonforfeitable rights to dividend equivalent distributions and therefore participate fully in the results of the operating company's operations from the date they are granted. They are included in the computation of diluted earnings per share using the two-class method for participating securities.} 

Approximately 1.2 million options to purchase Class B units and 1.0 million options to purchase Company Class A common stock were excluded from the calculation of diluted net income per share for each of the three and six months ended June 30, 2013, as their inclusion would have had an antidilutive effect based on current market prices. Approximately 1.7 million options to purchase Class B units and 1.0 million options to purchased Company Class A common stock were excluded from the calculation of diluted net income for each of the three and six months ended June 30, 2012, as their inclusion would have had an antidilutive effect for the respective periods based on market prices.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
OPERATING ACTIVITIES
Net Income	$ 10,292	$ 7,006	$ 19,983	$ 16,691
Adjustments to Reconcile Net Income to Cash
Depreciation	38	57	77	115
Disposal of Fixed Assets	0	0	0	(93)
Non-Cash Compensation	1,225	665	2,519	1,351
Director Share Grant	75	70	150	140
Net Realized and Unrealized (Gain)/Loss from Investments	(414)	189	(1,265)	(666)
Change in Liability to Selling and Converting Shareholders	229	(315)	1,268	658
Deferred Income Taxes	527	956	93	611
Changes in Operating Assets and Liabilities:
Advisory Fees Receivable	(1,573)	1,734	(3,748)	287
Due from Broker	1,554	1,010	(63)	(1,518)
Restricted Cash	0	0	(1)	0
Prepaid Expenses and Other Assets	227	(13)	(566)	56
Due to Broker	(1,581)	(1,532)	45	1,415
Accounts Payable, Accrued Expenses, and Other Liabilities	3,313	3,616	4,392	4,257
Tax Receivable Agreement Payments	0	0	(2,000)	(2,093)
Change in Lease Liability	(106)	(153)	(212)	(307)
Purchases of Investments	(19,906)	(10,588)	(53,206)	(31,423)
Proceeds from Sale of Investments	19,004	10,742	52,702	31,955
Net Cash Provided by Operating Activities	12,904	13,444	20,168	21,436
INVESTING ACTIVITIES
Purchases of Investments in Deferred Compensation Plan	(40)	(10)	(1,459)	(462)
Proceeds from Investments in Deferred Compensation Plan	0	0	78	544
Payments to Related Parties	(1)	(14)	(48)	(34)
Purchase of Property and Equipment	(5)	(1)	(5)	(1)
Net Cash (Used in)/Provided by Investing Activities	(46)	(25)	(1,434)	47
FINANCING ACTIVITIES
Repurchase and Retirement of Class A Common Stock	(1,017)	(125)	(1,684)	(125)
Repurchase and Retirement of Class B Unit Options	(71)	0	(71)	0
Distributions to Non-Controlling Interests	(10,186)	(8,933)	(21,809)	(22,270)
Contributions from Non-Controlling Interests	0	45	0	45
Dividends	(368)	(317)	(2,140)	(2,326)
Net Cash Used in Financing Activities	(11,642)	(9,330)	(25,704)	(24,676)
NET CHANGE IN CASH	1,216	4,089	(6,970)	(3,193)
CASH AND CASH EQUIVALENTS - Beginning of Period	24,459	27,801	32,645	35,083
CASH AND CASH EQUIVALENTS - End of Period	25,675	31,890	25,675	31,890
Supplementary Cash Flow Information:
In-Kind Distribution to Non-Controlling Interests of Equity Securities, at Fair Value	0	0	0	371
Interest Paid	0	0	0	26
Income Taxes Paid	$ 964	$ 993	$ 1,833	$ 1,733

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Employee Benefit Plans (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Compensation and Retirement Disclosure [Abstract]
Profit sharing and savings plan expenses recognized	$ 0.2	$ 0.2	$ 0.4	$ 0.4

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Income Taxes

6 Months Ended

Jun. 30, 2013

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes.  Neither it nor the Company’s other consolidated subsidiaries have made a provision for federal or state income taxes because it is the individual responsibility of each of these entities’ members (including the Company) to separately report their proportionate share of the respective entity’s taxable income or loss.  The operating company has made a provision for New York City UBT.  The Company, as a “C” corporation under the Internal Revenue Code, is liable for federal, state and local taxes on the income derived from its economic interest in its operating company, which is net of UBT.  Correspondingly, in its consolidated financial statements, the Company reports both the operating company’s provision for UBT, as well as its provision for federal, state and local corporate taxes.

The components of the income tax expense are as follows:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
	(in thousands)
Current Provision:
Unincorporated Business Taxes 1	$	706		$	578		$	702		$	1,169
Local Corporate Tax	—			—			—			—
State Corporate Tax	—			—			—			—
Federal Corporate Tax	—			—			—			—
Total Current Provision	$	706		$	578		$	702		$	1,169
Deferred Provision:
Unincorporated Business Taxes 1	$	(36	)	$	(27	)	$	22		$	15
Local Corporate Tax	74			62			157			139
State Corporate Tax	129			110			276			246
Federal Corporate Tax	631			365			1,134			834
Total Deferred Provision	$	798		$	510		$	1,589		$	1,234
Change in Valuation Allowance	(556		)	446			(1,781		)	(623		)
Net Adjustment Related to Change in Effective Tax Rate	$	286		$	—		$	286		$	—
Total Income Tax Expense	$	1,234		$	1,534		$	796		$	1,780

^{1 During March 2013, the operating company recognized a $0.6 million tax benefit associated with the amendment of prior year tax returns to change the methodology for state and local receipts.} 

The Income Taxes Topic of the FASB ASC establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax return positions in financial statements.  It is the Company’s policy to recognize accrued interest, and penalties associated with uncertain tax positions in Income Tax Expense on the consolidated statement of operations.  For the three and six months ended June 30, 2013 and 2012, no such expenses were recognized.  As of June 30, 2013 and December 31, 2012, no such accruals were recorded.

The Company and the operating company are generally no longer subject to U.S. Federal or state and local income tax examinations by tax authorities for any year prior to 2009.  All tax years subsequent to, and including, 2009 are considered open and subject to examination by tax authorities.

The acquisition of the operating company Class B units, noted below, has allowed the Company to make an election under Section 754 of the Internal Revenue Code (“Section 754”) to step up its tax basis in the net assets acquired.  This step up is deductible for tax purposes over a 15-year period.  Based on the net proceeds of the initial public offering and tax basis of the operating company, this election gave rise to an initial deferred tax asset of approximately $68.7 million.

Pursuant to a tax receivable agreement signed between the members of the operating company and the Company, 85% of the cash savings generated by this election will be distributed to the selling and converting shareholders upon the realization of this benefit.

If the Company exercises its right to terminate the tax receivable agreement early, the Company will be obligated to make an early termination payment to the selling and converting shareholders, based upon the net present value (based upon certain assumptions and deemed events set forth in the tax receivable agreement) of all payments that would be required to be paid by the Company under the tax receivable agreement.  If certain change of control events were to occur, the Company would be obligated to make an early termination payment.

As discussed in Note 6, Shareholders’ Equity, on March 20, 2013 and August 31, 2012, certain of the operating company’s members exchanged an aggregate of 1,328,334 and 722,521, respectively, of their Class B units for an equivalent number of shares of Company Class A common stock.  The Company elected to step up its tax basis in the incremental assets acquired in accordance with Section 754.  Based on the exchange-date fair values of the Company’s common stock and the tax basis of the operating company, this election gave rise to a $5.9 million deferred tax asset and corresponding $5.0 million liability on March 20, 2013 and a $2.2 million deferred tax asset and a corresponding $1.9 million liability on August 31, 2012.   The Company assessed the realizability of the deferred tax asset associated with each of these exchanges and determined that a portion of each of their benefits would go unutilized.  Consequently, the Company established a $5.1 million and $1.9 million valuation allowance on March 20, 2013 and August 31, 2012, respectively, to reduce the deferred tax asset to an amount more likely than not to be realized.  These deferred tax assets remain available to the Company and can be used to reduce taxable income in future years.  The Company similarly reduced the associated liability to selling and converting shareholders by $4.4 million and $1.6 million at March 20, 2013 and August 31, 2012, respectively, to reflect this change in the estimated realization of these assets.  As required by the Income Taxes Topic of the FASB ASC, the Company recorded the effects of these transactions in equity.   

During the three and six months ended June 30, 2013, after giving effect to the exchanges discussed earlier, the Company’s valuation allowance was reduced by approximately $0.6 million and $1.8 million, respectively, due to revised estimates of future taxable income.   Results for the three and six months ended June 30, 2013 also reflects a decrease in the Company's effective tax rate due to a decrease in state and local rates associated with a change in methodology for state and local receipts during 2013. This decrease is reflected as an adjustment to the Company's Section 754 deferred tax asset, valuation allowance, and other deferred tax assets. To reflect these changes in the estimated realization of the asset and its liability for future payments, the Company increased its liability to selling and converting shareholders by $0.2 million and $1.3 million for the three and six months ended June 30, 2013, respectively.  The effects of these changes to the deferred tax asset and liability to selling and converting shareholders were recorded as a component of the income tax expense and other expense, respectively, on the consolidated statements of operations.  

During the three months ended June 30, 2012, the Company’s valuation allowance was increased by approximately $0.4 million, due to revised estimates of future taxable income.  To reflect this change in the estimated realization of the asset and its liability for future payments, the Company decreased its liability to selling and converting shareholders by $0.3 million for the three months ended June 30, 2012.   During the six months ended June 30, 2012, after giving effect to the exchanges discussed earlier, the Company’s valuation allowance was decreased by approximately $0.6 million, due to revised estimates of future taxable income.  To reflect this change in the estimated realization of the asset and its liability for future payments, the Company increased its liability to selling and converting shareholders by $0.7 million for the six months ended June 30, 2012. The effects of these changes to the deferred tax asset and liability to selling and converting shareholders were recorded as a component of the income tax expense and other expense, respectively, on the consolidated statements of operations. 

As of June 30, 2013 and December 31, 2012, the net values of all deferred tax assets were approximately $10.4 million and $9.7 million, respectively.

The change in the Company’s deferred tax assets, net of valuation allowance, for the three and six months ended June 30, 2013 is summarized as follows:

	Section 754			Other			Valuation Allowance			Total
	(in thousands)
Balance at December 31, 2012	$	65,069		$	4,536		$	(59,917	)	$	9,688
Deferred Tax (Expense)/Benefit	(907		)	103			—			(804		)
Unit Exchange	5,935			—			(5,140		)	795
Change in Valuation Allowance	—			—			1,225			1,225
Balance at March 31, 2013	$	70,097		$	4,639		$	(63,832	)	$	10,904
Deferred Tax (Expense)/Benefit	(905		)	103			—			(802		)
Change in Effective Rate	(5,272		)	(105		)	5,091			(286		)
Change in Valuation Allowance	—			—			556			556
Balance at June 30, 2013	$	63,920		$	4,637		$	(58,185	)	$	10,372

The change in the Company’s deferred tax liabilities, which is included in other liabilities on the Company’s consolidated statements of financial condition, for the three and six months ended June 30, 2013, is summarized as follows:

	Total
	(in thousands)
Balance at December 31, 2012	$	(59	)
Deferred Tax Expense	14
Balance at March 31, 2013	$	(45	)
Deferred Tax Expense	5
Balance at June 30, 2013	$	(40	)

The change in the Company’s deferred tax assets, net of valuation allowance, for the three and six months ended June 30, 2012 is summarized as follows:

	Section 754			Other		Valuation Allowance			Total
	(in thousands)
Balance at December 31, 2011	$	66,224		$	3,661	$	(61,050	)	$	8,835
Deferred Tax (Expense)/Benefit	(823		)	158		—			(665		)
Change in Valuation Allowance	—			—		1,069			1,069
Balance at March 31, 2012	$	65,401		$	3,819	$	(59,981	)	$	9,239
Deferred Tax (Expense)/Benefit	(835		)	320		—			(515		)
Change in Valuation Allowance	—			—		(446		)	(446		)
Balance at June 30, 2012	$	64,566		$	4,139	$	(60,427	)	$	8,278

The change in the Company’s deferred tax liabilities for the three and six months ended June 30, 2012 is summarized as follows:

	Total
	(in thousands)
Balance at December 31, 2011	$	(13	)
Deferred Tax Benefit	(59		)
Balance at March 31, 2012	$	(72	)
Deferred Tax Expense	5
Balance at June 30, 2012	$	(67	)

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Investments, at Fair Value

6 Months Ended

Jun. 30, 2013

Investments, Debt and Equity Securities [Abstract]

Investments, at Fair Value

Investments, at Fair Value

Investments, at Fair Value consisted of the following at June 30, 2013:

	Cost		Unrealized Gain/(Loss)		Fair Value
	(in thousands)
Equity Securities	$	3,397	$	368	$	3,765
Investments in Mutual Funds	3,983		575		4,558
Total	$	7,380	$	943	$	8,323

Investments, at Fair Value consisted of the following at December 31, 2012:

	Cost		Unrealized Gain/(Loss)		Fair Value
	(in thousands)
Equity Securities	$	1,988	$	237	$	2,225
Investments in Mutual Funds	2,561		384		2,945
Total	$	4,549	$	621	$	5,170

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Organization (Tables)

6 Months Ended

Jun. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of entities

The Company, through its investment in its operating company, has consolidated the results of operations and financial condition of the following entities as of June 30, 2013:

		Operating Company's Ownership at
Legal Entity	Type of Entity (Date of Formation)	June 30, 2013
Pzena Investment Management, Pty	Australian Proprietary Limited Company (12/16/2009)	100.0	%
Pzena Investment Management Special Situations, LLC	Delaware Limited Liability Company (12/01/2010)	99.9	%
Pzena Investment Funds Trust, Pzena Large Cap Value Fund	Massachusetts Trust (11/01/2002)	0.0	%
Pzena International Value Service, a series of Pzena Investment Management International, LLC	Delaware Limited Liability Company (12/22/2003)	0.0	%

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Subsequent Events

6 Months Ended

Jun. 30, 2013

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

The Company evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued.  This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 01, 2013 Common Class A [Member]	Aug. 01, 2013 Common Class B [Member]
Entity Information [Line Items]
Entity Registrant Name	PZENA INVESTMENT MANAGEMENT, INC.
Entity Central Index Key	0001399249
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Jun. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus (Q1,Q2,Q3,FY)	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		12,202,294	52,347,732

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Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Basis of Presentation:

Basis of Presentation:

The consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and related Securities and Exchange Commission (“SEC”) rules and regulations.  The Company’s policy is to consolidate all majority-owned subsidiaries in which it has a controlling financial interest, which includes Pzena Investment Management, Pty and Pzena Investment Management Special Situations, LLC.  The Company also consolidates variable-interest entities (“VIEs”) where the Company is deemed to be the primary beneficiary, which includes Pzena Investment Funds Trust, Pzena Large Cap Value Fund (“Pzena Large Cap Value Fund”) and Pzena International Value Service, a series of Pzena Investment Management International, LLC (“Pzena International Value Fund”).  These majority-owned subsidiaries in which the Company has a controlling financial interest and the VIEs where the Company is deemed to be the primary beneficiary are collectively referred to as “consolidated subsidiaries.”  As required by the Consolidation Topic of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), the Company also consolidates non-variable-interest entities in which it acts or acted as the general partner or managing member.  All of these entities represent or represented private investment partnerships over which the Company exercises or exercised control.  Non-controlling interests recorded on the consolidated financial statements of the Company include the non-controlling interests of the outside investors in each of these entities, as well as those of the operating company.  All significant inter-company transactions and balances have been eliminated.

The operating company is the managing member of Pzena International Value Fund.  As of February 1, 2011, as a result of a shift in the equity ownership of that series on that date, the operating company was considered the primary beneficiary of this series and, as a result, the series was consolidated with the Company as of that date.  At June 30, 2013, Pzena International Value Fund’s $1.2 million in net assets were included in the Company’s consolidated statements of financial condition.

Pzena Large Cap Value Fund is a Massachusetts Trust in which a majority of the trustees are members of the executive committee of the operating company.  A majority of the trustees do not hold equity investments in this trust.  Since the holders of the equity investments in this partnership lack a controlling financial interest in it, this entity is deemed to be a VIE.  The Company is considered the primary beneficiary of this VIE.  At June 30, 2013, the Pzena Large Cap Value Fund’s $1.2 million in net assets were included in the Company’s consolidated statements of financial condition.

All of the consolidated investment partnerships are investment companies under the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies.  The Company has retained the specialized accounting for these partnerships pursuant to the Consolidation of Partnerships and Similar Entities Subtopic of the FASB ASC.  Thus, the Company reports these investment partnerships’ investments in Investments, at Fair Value, with net realized and unrealized gains and losses reported in earnings in the consolidated statements of operations.

VIEs that are not consolidated continue to receive investment management services from the Company, and are vehicles through which the Company offers its global value and/or international (ex-U.S.) value strategies.  The total net assets of these VIEs was approximately $148.0 million and $150.9 million at June 30, 2013 and December 31, 2012, respectively.  Neither the Company nor the operating company were exposed to losses as a result of its involvement with these entities because they had no direct investment in them.

The Company records in its own equity its pro-rata share of transactions that impact the operating company’s net equity, including unit and option issuances, repurchases, and retirements.  The operating company’s pro-rata share of such transactions are recorded as adjustments to additional paid-in capital or non-controlling interests, as applicable, on the consolidated statements of financial position.

Management's Use of Estimates:

Management’s Use of Estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the period.  Actual results could differ from those estimates.

Fair Values of Financial Instruments:

Fair Values of Financial Instruments:

The carrying amounts of all financial instruments in the consolidated statements of financial condition are presented at their fair value.

Revenue Recognition:

Revenue Recognition:

Revenue, comprised of advisory fee income, is recognized over the period in which advisory services are provided.  Advisory fee income includes management fees that are calculated based on percentages of assets under management (“AUM”), generally billed quarterly, either in arrears or advance, depending on their contractual terms.  Advisory fee income also includes performance fees that may be earned by the Company depending on the investment return of the assets under management.  Performance fee arrangements generally entitle the Company to participate, on a fixed-percentage basis, in any returns generated in excess of an agreed-upon benchmark.  The Company’s participation percentage in such return differentials is then multiplied by AUM to determine the performance fees earned.   In general, returns are calculated on an annualized basis over the contract’s measurement period, which usually extends to three years.  Performance fees are generally payable annually.  Following the preferred method identified in the Revenue Recognition Topic of the FASB ASC, such performance fee income is recorded at the conclusion of the contractual performance period, when all contingencies are resolved.  For each of the three and six months ended June 30, 2013, the Company recognized approximately $0.1 million in performance fee income.  The Company did not recognize any performance fee income for the three months ended June 30, 2012. Approximately $0.3 million in such fees were recognized for the six months ended June 30, 2012.

Cash and Cash Equivalents:

Cash and Cash Equivalents:

At June 30, 2013 and December 31, 2012, Cash and Cash Equivalents was $25.7 million and $32.6 million, respectively.  The Company considers all money market funds and highly-liquid debt instruments with an original maturity of three months or less at the time of purchase to be cash equivalents.  The Company maintains its cash in bank deposits and other accounts whose balances often exceed federally insured limits.

Interest on cash and cash equivalents is recorded as interest income on an accrual basis in the consolidated statements of operations.

Restricted Cash:

Restricted Cash:

The Company maintained compensating balances of $1.0 million at June 30, 2013 and December 31, 2012 as collateral for a letter of credit issued by a third party in lieu of a cash security deposit, as required by the Company’s lease for its New York office space.  Such amounts are recorded in Restricted Cash in the consolidated statements of financial condition.

Due to/from Broker:

Due to/from Broker:

Due to/from Broker consists primarily of amounts payable/receivable for unsettled securities transactions held/initiated at the clearing brokers of the Company’s consolidated subsidiaries.

Investments, at Fair Value:

Investments, at Fair Value:

Investments, at Fair Value represents the securities held by the Company and its consolidated subsidiaries, as well as investments in mutual funds.  The Company’s investments in third-party mutual funds are held to satisfy the Company’s obligations under its deferred compensation program.  Dividends associated with the investments of the Company’s consolidated subsidiaries are recorded as dividend income on an ex-dividend basis in the consolidated statement of operations.

All such investments are recorded at fair value, with net realized and unrealized gains and losses reported in earnings in the consolidated statements of operations.

The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.  The Fair Value Measurements and Disclosures Topic of the FASB ASC also establishes a framework for measuring fair value and a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability.  Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation hierarchy contains three levels: (i) valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets (Level 1); (ii) valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets, and other observable inputs directly or indirectly related to the asset or liability being measured (Level 2); and (iii) valuation inputs are unobservable and significant to the fair value measurement (Level 3).

The Company’s fair value measurements relate to its consolidated investments in equity securities, which are exchange-traded securities with quoted prices in active markets, and its investments in mutual funds.  The fair value measurements of the equity securities and investments in mutual funds have been classified as Level 1.

The following table presents these instruments’ fair value at June 30, 2013:

	Level 1		Level 2		Level 3
	(in thousands)
Assets:
Equity Securities	$	3,765	$	—	$	—
Investments in Mutual Funds	4,558		—		—
Total Fair Value	$	8,323	$	—	$	—

The following table presents these instruments’ fair value at December 31, 2012:

	Level 1		Level 2		Level 3
	(in thousands)
Assets:
Equity Securities	$	2,225	$	—	$	—
Investments in Mutual Funds	2,945		—		—
Total Fair Value	$	5,170	$	—	$	—

Securities Valuation:

Securities Valuation:

Investments in equity securities for which market quotations are available are valued at the last reported price or closing price on the primary market or exchange on which they trade.  If no reported equity sales occurred on the valuation date, equity investments are valued at the bid price.  Investments in mutual funds are valued at the closing net asset value per share of the fund on the day of valuation.  Transactions are recorded on a trade date basis.

The net realized gain or loss on sales of securities and investments in mutual funds is determined on a specific identification basis and is included in Net Realized and Unrealized Gain/(Loss) from Investments in the consolidated statements of operations.

Concentrations of Credit Risk:

Concentrations of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, amounts due from brokers, and advisory fees receivable.  The Company maintains its cash and cash equivalents in bank deposits and other accounts whose balances often exceed federally insured limits.

The concentration of credit risk with respect to advisory fees receivable is generally limited due to the short payment terms extended to clients by the Company.  On a periodic basis, the Company evaluates its advisory fees receivable and establishes an allowance for doubtful accounts, if necessary, based on a history of past write-offs and collections and current credit conditions.  At June 30, 2013 and December 31, 2012, no allowance for doubtful accounts was deemed necessary.

Property and Equipment:

Property and Equipment:

Property and equipment is carried at cost, less accumulated depreciation and amortization.  Depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets, which range from three to seven years.  Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvements or the remaining lease term.

Business Segments:

Business Segments:

The Company views its operations as comprising one operating segment.

Income Taxes:

Income Taxes:

The Company is a “C” corporation under the Internal Revenue Code, and thus liable for federal, state, and local taxes on the income derived from its economic interest in its operating company.  The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes.  It has not made a provision for federal or state income taxes because it is the individual responsibility of each of the operating company’s members (including the Company) to separately report their proportionate share of the operating company’s taxable income or loss.  Similarly, the income of the Company’s consolidated subsidiaries is not subject to income taxes, since it is allocated to each partnership’s individual partners.  The operating company has made a provision for New York City Unincorporated Business Tax (“UBT”).

The Company and its consolidated subsidiaries account for all federal, state, and local taxation pursuant to the asset and liability method, which requires deferred income tax assets and liabilities to be recorded for temporary differences between the carrying amount and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the temporary differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount more likely than not to be realized.  At June 30, 2013, the Company had a $58.2 million valuation allowance against deferred tax assets recorded as part of the Company’s initial public offering and the subsequent exchanges of Class B units for shares of its Class A common stock.  At December 31, 2012, the Company had a $59.9 million valuation allowance against these deferred tax assets.  The income tax expense, or benefit, is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities. The Company records its deferred tax liabilities as a component of other liabilities in the consolidated statements of financial condition.

Foreign Currency:

Foreign Currency:

Investment securities and other assets and liabilities denominated in foreign currencies are remeasured into U.S. dollar amounts at the date of valuation.  Purchases and sales of investment securities, and income and expense items denominated in foreign currencies, are remeasured into U.S. dollar amounts on the respective dates of such transactions.

The Company does not isolate the portion of the results of its operations resulting from the impact of fluctuations in foreign exchange rates on its non-U.S. investments.  Such fluctuations are included in Net Realized and Unrealized Gain/(Loss) from Investments in the consolidated statements of operations.

Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Company’s books and the U.S. dollar equivalent of the amounts actually received or paid.  Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities resulting from changes in exchange rates.

The functional currency of the Company is the United States Dollar.  The functional currency of the Company’s representative office in Australia is the Australian Dollar.  Assets and liabilities of this office are translated at the spot rate in effect at the applicable reporting date, and the consolidated statements of operations are translated at the average exchange rates in effect during the applicable period.  For the three and six months ended June 30, 2013 and 2012, the Company did not record any accumulated other comprehensive income.