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Note 5 - Investment Partnerships and Other Entities
12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Investment Holdings [Text Block]

5. Investment Partnerships and Other Entities

 

The Company is general partner or co-general partner of various affiliated entities whose underlying assets consist primarily of marketable securities (“Affiliated Entities”). The Company had investments in Affiliated Entities totaling $107.4 million and $114.7 million at December 31, 2023 and 2022, respectively. We also had investments in unaffiliated partnerships, offshore funds and other entities of $35.6 and $35.8 million at December 31, 2023 and 2022, respectively (“Unaffiliated Entities”). We evaluate each entity to determine its appropriate accounting treatment and disclosure. Certain of the Affiliated Entities, and none of the Unaffiliated Entities, are consolidated.

 

Investments in partnerships that are not required to be consolidated are accounted for using the equity method and are included in investments in partnerships on the consolidated statements of financial condition. The Company reflects the equity in earnings of these Affiliated Entities and Unaffiliated Entities as net gain/(loss) from investments on the consolidated statements of income.

 

Capital may generally be redeemed from Affiliated Entities on a monthly basis upon adequate notice as determined in the sole discretion of each entity’s investment manager. Capital invested in Unaffiliated Entities may generally be redeemed at various intervals ranging from monthly to annually upon notice of 30 to 95 days. Certain Unaffiliated Entities and Affiliated Entities may require a minimum investment period before capital can be voluntarily redeemed (a “Lockup Period”). No investment in an Unaffiliated Entity has an unexpired Lockup Period. The Company has no outstanding capital commitments to any Affiliated or Unaffiliated Entity.

 

PMV Consumer Acquisition Corp.

 

Commencing in August 2022, as a result of management and organizational restructuring negotiations at the Sponsor to extend the life of PMV, AC no longer controlled the manager of the Sponsor and thus no longer controlled The PMV Entities. As a result, The PMV Entities were deconsolidated from the financial statements and a loss of $3.6 million was recognized and recorded in Net gain/(loss) from investments in the consolidated statements of income. The loss represents the difference between the carrying value and fair value of our remaining interest as of the transaction date.

 

We accounted for our remaining interest in PMV (comprising 1 million shares of Class A common stock and 500,000 public warrants) at fair value. The initial fair value of these investments was $9.9 million based on the respective closing prices of both instruments on the transaction date. Our investments in Class A common stock and public warrants were recorded in Investments in equity securities in the condensed consolidated statements of financial condition and related earnings or loss from subsequent changes in fair value recognized in Net gain/(loss) from investments in the consolidated statements of income. On December 27, 2022, our 1 million shares of Class A common stock were redeemed in full at $10.10 per share. We have continuing involvement with PMV through our ownership of the 500,000 public warrants. 

 

We accounted for our remaining interest in the Sponsor (comprising our original $4.0 million investment) under the equity method. The initial fair value was $1.0 million which was valued using the market approach. Our investment is recorded in Investments in partnerships in the consolidated statements of financial condition and related earnings or loss from our share of the underlying net income or loss will be recognized in Net gain/(loss) from investments in the consolidated statements of income. We have continuing involvement with the Sponsor through our ownership interest. 

 

Prior to August 2022, AC consolidated the assets, liabilities and the results of operations of both PMV and Sponsor because AC had a controlling financial interest in these entities through AC's 100% ownership of the manager of the Sponsor. AC determined that the Sponsor was a variable interest entity (VIE) and that AC was the primary beneficiary and therefore consolidated the assets and liabilities and results of operations of the Sponsor. In addition, AC determined that PMV was a VIE due to the lack of equity at risk and therefore was consolidated by the Sponsor, who was deemed to be the primary beneficiary. Neither AC nor PMV had a right to the benefits from nor did it bear the risks associated with the marketable securities held in trust assets held by PMV. 

 

Consolidated Entities

 

The following table reflects the net impact of the consolidated investment partnerships (“Consolidated Entities”) on the consolidated statements of financial condition (in thousands):

 

  

December 31, 2023

 
  

Prior to

  

Consolidated

     

Assets

 

Consolidation

  

Entities

  

As Reported

 

Cash and cash equivalents

 $299,508  $17,979  $317,487 

Investments in U.S. Treasury Bills

  79,714   9,441   89,155 

Investments in equity securities

  149,154   47,429   196,583 

Investments in affiliated registered investment companies

  181,641   (54,890)  126,751 

Investments in partnerships

  163,226   (20,252)  142,974 

Receivable from brokers(1)

  25,026   5,242   30,268 

Investment advisory fees receivable

  4,714   (3)  4,711 

Other assets(1)

  33,444   2,424   35,868 

Total assets

 $936,427  $7,370  $943,797 

Liabilities, redeemable noncontrolling interests and equity

            

Securities sold, not yet purchased

 $5,639  $279  $5,918 

Payable to brokers and other liabilities(1)

  23,813   988   24,801 

Redeemable noncontrolling interests

  -   6,103   6,103 

Total equity

  906,975   -   906,975 

Total liabilities, redeemable noncontrolling interests and equity

 $936,427  $7,370  $943,797 

 

  

December 31, 2022

 
  

Prior to

  

Consolidated

     

Assets

 

Consolidation

  

Entities

  

As Reported

 

Cash and cash equivalents

 $209,941  $8,521  $218,462 

Investments in U.S. Treasury Bills

  183,528   2,473   186,001 

Investments in equity securities

  129,942   65,643   195,585 

Investments in affiliated registered investment companies

  178,689   (52,479)  126,210 

Investments in partnerships

  168,286   (17,788)  150,498 

Receivable from brokers

  4,002   8,070   12,072 

Investment advisory fees receivable

  3,814   (7)  3,807 

Other assets(1)

  35,045   10   35,055 

Total assets

 $913,247  $14,443  $927,690 

Liabilities, redeemable noncontrolling interests and equity

            

Securities sold, not yet purchased

 $2,678  $196  $2,874 

Payable to brokers and other liabilities(1)

  20,373   4,054   24,427 

Redeemable noncontrolling interests

  -   10,193   10,193 

Total equity

  890,196   -   890,196 

Total liabilities, redeemable noncontrolling interests and equity

 $913,247  $14,443  $927,690 

 

(1) Represents the summation of multiple captions from the consolidated statements of financial condition.

 

The following table reflects the net impact of the Consolidated Entities on the consolidated statements of income (in thousands):

 

  

Year Ended December 31, 2023

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $13,125  $(442) $12,683 

Total expenses

  28,566   1,064   29,630 

Operating loss

  (15,441)  (1,506)  (16,947)

Total other income/(expense), net

  64,452   (640)  63,812 

Income before income taxes

  49,011   (2,146)  46,865 

Income tax expense

  11,560   (2,423)  9,137 

Income/(loss) before noncontrolling interests

  37,451   277   37,728 

Income attributable to noncontrolling interests, net of taxes

  -   277   277 

Net income/(loss)

 $37,451  $-  $37,451 

 

  

Year Ended December 31, 2022

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $15,884  $(656) $15,228 

Total expenses

  24,538   1,952   26,490 

Operating loss

  (8,654)  (2,608)  (11,262)

Total other income/(expense), net

  (55,196)  5,993   (49,203)

Income before income taxes

  (63,850)  3,385   (60,465)

Income tax expense

  (14,943)  -   (14,943)

Income/(loss) before noncontrolling interests

  (48,907)  3,385   (45,522)

Income attributable to noncontrolling interests, net of taxes

  -   3,385   3,385 

Net income/(loss)

 $(48,907) $-  $(48,907)

 

Variable Interest Entity

 

With respect to the consolidated VIE, its assets may only be used to satisfy its obligations. The investors and creditors of the consolidated VIE have no recourse to the Company’s general assets. In addition, the Company neither benefits from such VIE’s assets nor bears the related risk beyond its beneficial interest in the VIE.

 

The following table presents the balances related to the VIE that is consolidated and included on the consolidated statements of financial condition as well as the Company’s net interest in the VIE (in thousands):

 

  December 31, 2023  December 31, 2022 

Cash and cash equivalents

 $302  $500 

Investments in equity securities

  9,695   8,396 

Receivable from brokers

  166   304 

Accrued expenses and other liabilities(1)

  (46)  (33)

Redeemable noncontrolling interests

  (451)  (428)

AC Group's net interests in consolidated VIEs

 $9,666  $8,739 

 

(1) Represents the summation of multiple captions from the consolidated statements of financial condition. 

 

Voting Interest Entity

 

We have an investment partnership that is consolidated as a VOE for both 2023 and 2022 because AC has a controlling interest in the entity. This resulted in the consolidation of $72.4 million of assets, $1.4 million of liabilities, and $5.6 million of redeemable noncontrolling interests for 2023 and $75.6 million of assets, $4.4 million of liabilities, and $9.8 million of redeemable noncontrolling interests for 2022. AC’s net interest in the consolidated VOE for 2023 and 2022 was $65.4 million and $61.4 million, respectively. Approximately $3.2 million and $29.0 million of redeemable noncontrolling interest holders tendered their shares in the entity in 2023 and 2022, respectively. 

 

Equity Method Investments

 

The Company’s equity method investments include investments in partnerships and offshore funds. These equity method investments are not consolidated but on an aggregate basis exceed 10% of the Company’s consolidated total assets or income.