10-Q

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from         to     

Commission file number 000-24498

DIAMOND HILL INVESTMENT GROUP, INC.

(Exact name of registrant as specified in its charter)

Ohio	65-0190407
(State of incorporation)	(I.R.S. Employer Identification No.)

325 John H. McConnell Blvd., Suite 200, Columbus, Ohio 43215

(Address of principal executive offices) (Zip Code)

(614) 255-3333

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	DHIL	The NASDAQ Stock Market LLC

The number of shares outstanding of the issuer’s common stock as of April 26, 2021 is 3,193,930 shares.

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  x    No  ¨

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

Large accelerated filer	☐	Accelerated filer	x
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

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

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

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DIAMOND HILL INVESTMENT GROUP, INC.

		PAGE
Part I: FINANCIAL INFORMATION		3
Item 1.	Consolidated Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
Part II: OTHER INFORMATION		29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
Signatures		32

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Table of Contents

PART I: FINANCIAL INFORMATION

ITEM 1: Consolidated Financial Statements

Diamond Hill Investment Group, Inc.

Consolidated Balance Sheets

	3/31/2021		12/31/2020
	(Unaudited)
ASSETS
Cash and cash equivalents	$	80,187,685	$	98,478,202
Investments	142,695,192		128,401,136
Accounts receivable	19,717,837		17,805,864
Prepaid expenses	2,810,871		2,977,759
Income taxes receivable	—		256,538
Property and equipment, net of accumulated depreciation	6,820,446		6,740,396
Deferred taxes	7,433,362		8,437,446
Total assets	$	259,665,393	$	263,097,341
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Accounts payable and accrued expenses	$	9,306,239	$	8,002,303
Accrued incentive compensation	8,236,156		28,400,000
Income taxes payable	3,647,687		—
Deferred compensation	33,369,087		33,241,952
Total liabilities	54,559,169		69,644,255
Redeemable noncontrolling interest	10,665,146		9,372,333
Permanent Shareholders’ equity
Common stock, no par value: 7,000,000 shares authorized; 3,197,634 issued and outstanding at March 31, 2021 (inclusive of 215,352 unvested shares); 3,168,823 issued and outstanding at December 31, 2020 (inclusive of 183,718 unvested shares)	85,303,452		80,810,946
Preferred stock, undesignated, 1,000,000 shares authorized and unissued	—		—
Deferred equity compensation	(19,440,920)		(14,748,118)
Retained earnings	128,578,546		118,017,925
Total permanent shareholders’ equity	194,441,078		184,080,753
Total liabilities and shareholders’ equity	$	259,665,393	$	263,097,341
Book value per share	$	60.81	$	58.09

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

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Diamond Hill Investment Group, Inc.

Consolidated Statements of Income (unaudited)

	Three Months Ended   March 31,
	2021		2020
REVENUES:
Investment advisory	$	36,569,103	$	30,157,680
Mutual fund administration, net	2,445,330		1,768,065
Total revenue	39,014,433		31,925,745
OPERATING EXPENSES:
Compensation and related costs, excluding deferred compensation expense (benefit)	16,814,941		15,417,176
Deferred compensation expense (benefit)	3,102,946		(8,155,881)
General and administrative	2,815,678		1,928,656
Sales and marketing	1,868,026		1,455,682
Mutual fund administration	880,721		814,953
Total operating expenses	25,482,312		11,460,586
NET OPERATING INCOME	13,532,121		20,465,159
Investment income (loss), net	5,663,454		(22,398,092)
NET INCOME (LOSS) BEFORE TAXES	19,195,575		(1,932,933)
Income tax expense	(4,932,962)		(595,435)
NET INCOME (LOSS)	14,262,613		(2,528,368)
Net loss (income) attributable to redeemable noncontrolling interest	(554,102)		4,058,476
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	13,708,511	$	1,530,108
Earnings per share attributable to common shareholders
Basic	$	4.34	$	0.47
Diluted	$	4.34	$	0.47
Weighted average shares outstanding
Basic	3,156,768		3,272,761
Diluted	3,156,768		3,272,761

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

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Diamond Hill Investment Group, Inc.

Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interest (unaudited)

	Three Months Ended March 31, 2021
	Shares Outstanding	Common Stock		Deferred Equity Compensation		Retained Earnings		Total		Redeemable Noncontrolling Interest
Balance at December 31, 2020	3,168,823	$	80,810,946	$	(14,748,118)	$	118,017,925	$	184,080,753	$	9,372,333
Issuance of restricted stock grants	52,434	8,160,714		(8,160,714)		—		—		—
Amortization of restricted stock grants	—	—		1,397,132		—		1,397,132		—
Common stock issued as incentive compensation	3,681	529,806		—		—		529,806		—
Issuance of common stock related to 401k plan match	154	24,000		—		—		24,000		—
Shares withheld related to employee tax withholding	(1,729)	(258,088)		—		—		(258,088)		—
Forfeiture of restricted stock grants	(13,200)	(2,070,780)		2,070,780		—		—		—
Repurchase of common stock	(12,529)	(1,893,146)		—		—		(1,893,146)		—
Cash dividend paid of $1.00 per share	—	—		—		(3,147,890)		(3,147,890)		—
Net income	—	—		—		13,708,511		13,708,511		554,102
Net subscriptions of consolidated Funds	—	—		—		—		—		738,711
Balance at March 31, 2021	3,197,634	$	85,303,452	$	(19,440,920)	$	128,578,546	$	194,441,078	$	10,665,146
	Three Months Ended March 31, 2020
	Shares Outstanding	Common Stock		Deferred Equity Compensation		Retained Earnings		Total		Redeemable Noncontrolling Interest
Balance at December 31, 2019	3,294,672	$	95,853,477	$	(20,331,890)	$	117,334,094	$	192,855,681	$	14,178,824
Issuance of restricted stock grants	3,850	347,424		(347,424)		—		—		—
Amortization of restricted stock grants	—	—		1,786,217		—		1,786,217		—
Common stock issued as incentive compensation	23,640	3,396,359		—		—		3,396,359		—
Issuance of common stock related to 401k plan match	5,316	647,100		—		—		647,100		—
Shares withheld related to employee tax withholding	(1,801)	(252,968)		—		—		(252,968)		—
Forfeiture of restricted stock grants	(1,225)	(206,347)		206,347		—		—		—
Repurchase of common stock	(76,937)	(9,182,577)		—		—		(9,182,577)
Net income (loss)	—	—		—		1,530,108		1,530,108		(4,058,476)
Net redemptions of consolidated Funds	—	—		—		—		—		(565,998)
Balance at March 31, 2020	3,247,515	$	90,602,468	$	(18,686,750)	$	118,864,202	$	190,779,920	$	9,554,350

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

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Diamond Hill Investment Group, Inc.

Consolidated Statements of Cash Flows (unaudited)

	Three Months Ended   March 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	14,262,613	$	(2,528,368)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	218,731		265,084
Share-based compensation	1,481,578		2,433,317
Decrease (increase) in accounts receivable	(1,911,973)		3,873,142
Change in current income taxes	3,904,225		3,297,343
Change in deferred income taxes	1,004,084		(2,691,713)
Net (gains) losses on investments	(5,205,321)		23,246,116
Net change in securities held by Consolidated Funds	(11,456,604)		(589,071)
Decrease in accrued incentive compensation	(19,634,038)		(15,799,928)
Increase (decrease) in deferred compensation	127,135		(7,475,032)
Other changes in assets and liabilities	1,549,065		(2,039,894)
Net cash (used in) provided by operating activities	(15,660,505)		1,990,996
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(413,441)		(115,218)
Purchase of Company sponsored investments	(1,890,082)		(10,948,903)
Proceeds from sale of Company sponsored investments	3,891,396		23,209,972
Net cash provided by investing activities	1,587,873		12,145,851
CASH FLOWS FROM FINANCING ACTIVITIES:
Value of shares withheld related to employee tax withholding	(258,088)		(252,968)
Payment of dividends	(3,147,890)		—
Net subscriptions (redemptions) received from redeemable noncontrolling interest holders	738,711		(565,998)
Repurchase of common stock	(1,893,146)		(9,182,577)
Proceeds received under employee stock purchase plan	342,528		—
Net cash used in financing activities	(4,217,885)		(10,001,543)
CASH AND CASH EQUIVALENTS
Net change during the period	(18,290,517)		4,135,304
At beginning of period	98,478,202		93,176,253
At end of period	$	80,187,685	$	97,311,557
Supplemental cash flow information:
Income taxes paid	$	24,653	$	—
Supplemental disclosure of non-cash transactions:
Common stock issued as incentive compensation	529,806		3,396,359
Charitable donation of corporate investments	$	366,555	$	—

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

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Diamond Hill Investment Group, Inc.

Notes to Consolidated Financial Statements (unaudited)

Note 1 Business and Organization

Diamond Hill Investment Group, Inc. (the "Company"), an Ohio corporation, derives consolidated revenue and net income from investment advisory and fund administration services.

Diamond Hill Capital Management, Inc. ("DHCM"), an Ohio corporation, is a wholly owned subsidiary of the Company and a registered investment adviser. DHCM is the investment adviser and administrator for the Diamond Hill Funds (the "Funds"), a series of open-end mutual funds. The Company also provides investment advisory services to separately managed accounts and provides sub-advisory services to other mutual funds.

Note 2 Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, condensed, consolidated financial statements as of March 31, 2021 and December 31, 2020, and for the three-month periods ended March 31, 2021 and March 31, 2020, for Diamond Hill Investment Group, Inc. and its subsidiaries (referred to in these notes to the condensed consolidated financial statements as "the Company," "management," "we," "us," and "our"), have been prepared in accordance with United States generally accepted accounting principles ("GAAP"), with the instructions to Form 10-Q, and with Article 10 of Securities and Exchange Commission (the "SEC") Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair statement of the financial condition and results of operations as of the dates, and for the interim periods, presented have been included. These unaudited, condensed, consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements of the Company included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the "2020 Form 10-K"), as filed with the SEC.

Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the results the Company may expect for the full fiscal year ending December 31, 2021 (“fiscal 2021”).

For further information regarding the risks to the Company's business, refer to the consolidated financial statements and notes thereto included in the 2020 Form 10-K and in “Part II – Item 1A. – Risk Factors” of this Quarterly Report on Form 10-Q.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions related to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expense during the period. Actual results could differ from those estimates.

Reclassification

Certain prior period amounts and disclosures may have been reclassified to conform to the current period's financial presentation.

Principles of Consolidation

The accompanying consolidated financial statements include the operations of the Company and its controlled subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.

The Company holds certain investments in the Funds for general corporate investment purposes, to provide seed capital for newly formed strategies, or to add capital to existing strategies. The Funds are organized in a series fund structure in which there are multiple mutual funds within one trust (the "Trust"). The Trust is an open-end investment company registered under the Investment Company Act of 1940, as amended (the"1940 Act").

The Company performs its consolidation analysis at the individual Fund level and has concluded that the Funds are voting rights entities ("VREs") because the structure of the Funds is such that the shareholders are deemed to have the power through voting rights to direct the activities that most significantly impact each Fund's economic performance. To the extent material,

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these Funds are consolidated if Company ownership, directly or indirectly, represents a majority interest (greater than 50%). The Company records redeemable noncontrolling interests in consolidated investments for which the Company's ownership is less than 100%. The Company has consolidated the Diamond Hill Large Cap Concentrated Fund, the Diamond Hill International Fund, and the Diamond Hill Global Fund (collectively, the "Consolidated Funds") as of March 31, 2021.

Redeemable Noncontrolling Interest

Redeemable noncontrolling interest represents third-party interests in the Consolidated Funds. This interest is redeemable at the option of the investors, and therefore, is not treated as permanent equity. Redeemable noncontrolling interest is recorded at redemption value, which approximates the fair value each reporting period.

Segment Information

Management has determined that the Company operates in one business segment, which is providing investment management and administration services to mutual funds and separately managed accounts. Therefore, the Company does not present disclosures relating to operating segments in annual or interim financial statements.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and money market mutual funds held by DHCM.

Accounts Receivable

The Company records accounts receivable when they are due and presents them on the balance sheet net of any allowance for doubtful accounts. Accounts receivable are written off when they are determined to be uncollectible. Any allowance for doubtful accounts is estimated based on the Company’s historical losses, existing conditions in the industry, and the financial stability of the individual or entity that owes the receivable. No allowance for doubtful accounts was deemed necessary at either March 31, 2021, or December 31, 2020. Accounts receivable from the Funds were $12.3 million as of March 31, 2021, and $10.5 million as of December 31, 2020.

Investments

Management determines the appropriate classification of its investments at the time of purchase and re-evaluates its determination for each reporting period.

Investments in the Funds that DHCM advises, where the Company has neither control nor the ability to exercise significant influence, as well as securities held in the Consolidated Funds are measured at fair value based on quoted market prices. Unrealized gains and losses are recorded as investment income (loss) in the Company's consolidated statements of income.

Investments classified as equity method investments represent investments in which the Company owns between 20-50% of the outstanding voting interests in the entity or when it is determined that the Company is able to exercise significant influence but not control over the investments. When using the equity method, the Company recognizes its respective share of the investee's net income or loss for the period, which is recorded as investment income in the Company's consolidated statements of income.

As of March 31, 2021, the Company did not have any investments classified as equity method investments.

Property and Equipment

Property and equipment, consisting of leasehold improvements, right-of use lease assets, computer equipment, capitalized software, furniture, and fixtures are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated lives of the assets.

Revenue Recognition – General

The Company recognizes revenue when it satisfies performance obligations under the terms of a contract with a client. The Company earns substantially all of its revenue from investment advisory and fund administration contracts. Investment advisory and administration fees, generally calculated as a percentage of assets under management ("AUM"), are recorded as revenue as services are performed. In addition to fixed fees based on a percentage of AUM, certain client accounts also provide periodic performance-based fees.

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Revenue earned during the three months ended March 31, 2021 and 2020 under contracts with clients include:

	Three Months Ended March 31, 2021
	Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	$	26,510,701	$	2,445,330	$	28,956,031
Sub-advised funds and separately managed accounts	10,058,402		—		10,058,402
	$	36,569,103	$	2,445,330	$	39,014,433

	Three Months Ended March 31, 2020
	Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	$	23,454,563	$	1,768,065	$	25,222,628
Sub-advised funds and separately managed accounts	6,703,117		—		6,703,117
	$	30,157,680	$	1,768,065	$	31,925,745

Revenue Recognition – Investment Advisory Fees

The Company's investment advisory contracts with clients have a single performance obligation because the contracted services are not separately identifiable from other obligations in the contracts and, therefore, are not distinct. All performance obligations to provide advisory services are satisfied over time and the Company recognizes revenue as time passes.

The fees the Company receives for its services under its investment advisory contracts are based on AUM, which changes based on the value of securities held under each advisory contract. These fees are thereby constrained and represent variable consideration, and they are excluded from revenue until the AUM on which the Company's client is billed is no longer subject to market fluctuations.

The Company also provides services to model delivery programs in which the Company provides its strategy model portfolio to

the sponsor of the model delivery. The Company is paid a portion of the model delivery fee for its services by the program

sponsor at a pre-determined rate based on assets in the program. Model delivery program revenues were $0.9 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively. Model delivery program revenue is included in investment advisory fees in the consolidated statements of income.

Revenue Recognition – Performance-Based Fees

The Company manages certain client accounts that provide for performance-based fees. These fees are calculated based on client investment results over rolling five-year periods. The Company records performance-based fees when it is probable that a significant reversal of the revenue will not occur. The Company did not record any performance-based fees during either of the three-month periods ended March 31, 2021 and 2020. The table below shows AUM subject to performance-based fees and the amount of performance-based fees that would be recognized based upon investment results as of March 31, 2021:

	As of March 31, 2021
	AUM subject to performance-based fees		Unearned performance-based fees
Contractual Period Ending:
Quarter Ended September 30, 2021	$	375,886,495	$	9,928,373
Quarter Ended December 31, 2021	67,514,790		125,672
Total	$	443,401,285	$	10,054,045

The contractual end dates highlight the time remaining until the performance-based fees are scheduled to be earned. The amount of performance-based fees that would be recognized based upon investments results as of March 31, 2021, will increase or decrease based on future client investment results through the end of the contractual period. The Company cannot assure that it will earn the unearned amounts set forth above.

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Revenue Recognition – Mutual Fund Administration

DHCM has an administrative and transfer agency services agreement with the Funds under which DHCM performs certain services for each Fund. These services include performance obligations such as mutual fund administration, fund accounting, transfer agency, and other related functions. These services are performed concurrently under DHCM's agreement with the Funds, all performance obligations to provide these administrative services are satisfied over time, and the Company recognizes the related revenue as time progresses. Each Fund pays DHCM a fee for performing these services, which is calculated using an annual rate multiplied by the average daily net assets of each respective Fund share class. These fees are thereby constrained and represent variable consideration, and they are excluded from revenue until the AUM on which DHCM bills the Funds is no longer subject to market fluctuations.

The Funds have selected and contractually engaged certain vendors to fulfill various services to benefit the Funds’ shareholders or to satisfy regulatory requirements of the Funds. These services include, among others, required shareholder mailings, federal and state registrations, and legal and audit services. In fulfilling a portion of its role under the administration agreement with the Funds, DHCM acts as agent and pays for these services on behalf of the Funds. Each vendor is independently responsible for fulfillment of the services it has been engaged to provide and negotiates its fees and terms directly with the management and board of trustees of the Funds. Each year, the Funds' board of trustees reviews the fee that each Fund pays to DHCM, and specifically considers the contractual expenses that DHCM pays on behalf of the Funds. As a result, DHCM is not involved in the delivery or pricing of these services, and bears no risk related to these services. Revenue has been recorded net of these Fund-related expenses. In addition, DHCM advances the upfront commissions that are paid to brokers who sell Class C shares of the Funds. These advances are capitalized and amortized over 12 months to correspond with the repayments DHCM receives from the principal underwriter to recoup this commission advancement. During the first quarter of 2021, Class C shares were eliminated and converted to Investor Class shares. As a result, no material financing activity will be recognized in future periods.

Mutual fund administration gross and net revenue are summarized below:

	Three Months Ended   March 31,
	2021		2020
Mutual fund administration:
Administration revenue, gross	$	6,926,414	$	5,592,658
Fund related expense	(4,466,157)		(3,827,249)
Revenue, net of related expenses	2,460,257		1,765,409
C-Share financing:
Broker commission advance repayments	33,594		63,542
Broker commission amortization	(48,521)		(60,886)
Financing activity, net	(14,927)		2,656
Mutual fund administration revenue, net	$	2,445,330	$	1,768,065

Income Taxes

The Company accounts for current and deferred income taxes through an asset and liability approach. Deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company is subject to examination by federal and applicable state and local jurisdictions for various tax periods. The Company’s income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which it does business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws among those jurisdictions, and the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company’s estimates of income tax liabilities may differ from actual payments or assessments. The Company regularly assesses its positions with regard to tax exposures and records liabilities for these uncertain tax positions and related interest and penalties, if any, according to the principles of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740, Income Taxes. The Company records interest and penalties within income tax expense on the income statement. See Note 8.

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Earnings Per Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period, which includes unvested restricted shares. See Note 9.

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Note 3 Investments

The following table summarizes the carrying value of the Company's investments as of March 31, 2021 and December 31, 2020:

	As of
	March 31, 2021		December 31, 2020
Fair value investments:
Securities held in Consolidated Funds(a)	$	47,164,927	$	33,233,307
Company sponsored investments	95,530,265		95,167,829
Total Investments	$	142,695,192	$	128,401,136

(a) Of the securities held in the Consolidated Funds as of March 31, 2021, the Company directly held $35.0 million and noncontrolling shareholders held $12.2 million. Of the securities held in the Consolidated Funds as of December 31, 2020, the Company directly held $23.6 million and noncontrolling shareholders held $9.6 million.

The components of net investment income (loss) are as follows:

	Three Months Ended March 31,
	2021		2020
Realized gains (losses)	$	2,523,505	$	(817,539)
Unrealized gains (losses)	2,505,344		(22,467,598)
Dividends	665,009		894,413
Other	(30,404)		(7,368)
Investment income (loss), net	$	5,663,454	$	(22,398,092)

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Note 4 Fair Value Measurements

The Company determines the fair value of its cash equivalents and certain investments using the following broad levels listed below:

Level 1 - Unadjusted quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-driven valuations in which all significant inputs are observable.

Level 3 - Valuations derived from techniques in which significant inputs are unobservable. We do not value any investments using Level 3 inputs.

These levels are not necessarily indicative of the risk or liquidity associated with investments.

The following table summarizes investments that are recognized in the Company's consolidated balance sheet using fair value measurements determined based upon the differing levels as of March 31, 2021:

	Level 1		Level 2		Level 3		Total
Cash equivalents	$	77,122,682	$	—	$	—	$	77,122,682
Fair value investments:
Securities held in Consolidated Funds(a)	29,702,152		17,462,775		—		$	47,164,927
Company-sponsored investments	$	95,530,265	$	—	$	—	$	95,530,265

(a) Of the securities held in the Consolidated Funds as of March 31, 2021, the Company directly held $35.0 million and noncontrolling shareholders held $12.2 million.

The Company determines transfers between fair value hierarchy levels at the end of the reporting period. There were no transfers in or out of the levels during the three months ended March 31, 2021.

Changes to fair values of the investments are recorded in the Company’s consolidated statements of income as investment income (loss), net.

Note 5 Line of Credit

The Company has a committed line of credit agreement (the "Credit Agreement") with a commercial bank that matures on December 24, 2021, which permits the Company to borrow up to $25.0 million. Borrowings under the Credit Agreement bear interest at a rate equal to LIBOR plus 1.00%. The Company pays a commitment fee on the unused portion of the facility, accruing at a rate per annum of 0.10%.

The proceeds of the Credit Agreement may be used by the Company and its subsidiaries for ongoing working capital needs, to seed new and existing investment strategies, and for other general corporate purposes. The Credit Agreement contains customary representations, warranties and covenants.

The Company did not borrow under the Credit Agreement for the period ended March 31, 2021, and no borrowings are outstanding as of March 31, 2021.

Note 6 Compensation Plans

Share-Based Payment Transactions

The Company issues restricted stock grants under the 2014 Equity and Cash Incentive Plan (the "2014 Plan"). Restricted stock grants represent common shares issued and outstanding upon grant subject to vesting restrictions. The Company has historically issued stock grants that cliff vest after five years to all new employees upon hire and as additional grants to key employees on a periodic basis. While the Company currently plans to continue to issue five-year cliff vest grants to new employees, beginning in 2021, new long-term incentive awards to existing employees were made in the form of three-year graded vesting stock grants.

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Restricted stock grants issued under the 2014 Plan are valued based upon the fair market value of the common shares on the applicable grant date. The restricted stock grants are recorded as deferred compensation in the equity section of the balance sheet on the grant date and then recognized as compensation expense on a straight-line basis over the vesting period of the respective grant. The Company's policy is to adjust compensation expense for forfeitures as they occur.

The following table represents a roll-forward of outstanding restricted stock and related activity for the three months ended March 31, 2021:

	Shares	Weighted-Average Grant Date Price per Share
Outstanding restricted stock as of December 31, 2020	183,718	$	173.80
Grants issued	52,434	155.64
Grants vested	(7,600)	174.98
Grants forfeited	(13,200)	156.88
Total outstanding restricted stock as of March 31, 2021	215,352	$	168.34

As of March 31, 2021, 181,471 common shares remained available for grants under the 2014 Plan.

Total deferred equity compensation related to unvested restricted stock was $19.4 million as of March 31, 2021. The recognition of compensation expense related to deferred compensation over the remaining vesting periods is as follows:

Nine Months   Remaining In
2021		2022		2023		2024		2025		Thereafter		Total
$	5,926,670	$	6,730,500	$	4,765,545	$	1,719,462	$	297,487	$	1,256	$	19,440,920

Employee Stock Purchase Plan

The Company adopted the Diamond Hill Investment Group, Inc. Employee Stock Purchase Plan (the "ESPP") effective October 27, 2020. Under the ESPP, eligible employees may purchase shares of the Company's common stock at 85% of the fair market value on the last day of each offering period. Each offering period is approximately three months coinciding with the Company's fiscal quarters. During the three-month period ended March 31, 2021, ESPP participants purchased 2,583 shares of common stock for $0.3 million and the Company recorded $0.1 million of share based payment expense related to these purchases.

Stock Grant Transactions

The following table represents common shares issued as part of the Company's incentive compensation program during the three-month period ended March 31, 2021, and 2020:

	Shares Issued	Grant Date Value
March 31, 2021	3,681	$	529,806
March 31, 2020	23,640	$	3,396,359

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401(k) Plan

The Company sponsors a 401(k) plan in which all employees are eligible to participate. Employees may contribute a portion of their compensation subject to certain limits based on federal tax laws. The Company matches employee contributions equal to 250 percent of the first six percent of an employee’s compensation contributed to the plan. As of January 1, 2021, the Company settles the 401(k) plan matching contributions in cash or common shares of the Company based on the election of the employees. Prior to January 1, 2021, the Company made all matching contributions in common shares of the Company.

Deferred Compensation Plans

The Company offers two deferred compensation plans, the Diamond Hill Fixed Term Deferred Compensation Plan and the Diamond Hill Variable Term Deferred Compensation Plan (together, the “Plans”). Under the Plans, participants may elect to voluntarily defer, for a minimum of five years, certain incentive compensation that the Company then contributes into the Plans. Participants are responsible for designating investment options for the assets they contribute, and the distribution paid to each participant reflects any gains or losses on the assets realized in connection with the Plans. Assets held in the Plans are included in the Company’s investment portfolio, and the associated obligation to participants is included in deferred compensation liability. Deferred compensation liability was $33.4 million and $33.2 million as of March 31, 2021 and December 31, 2020, respectively.

Note 7 Operating Lease

The Company currently leases office space of approximately 37,829 square feet at one location.

As of March 31, 2021, the carrying value of this right-of-use asset, which is included in property and equipment, was approximately $1.9 million net of deferred rent on the consolidated balance sheets. As of March 31, 2021, the carrying value of the lease liability was approximately $2.4 million, which is included in accounts payable and accrued expenses on the consolidated balance sheets.

The following table summarizes the total lease and operating expenses for the three-month periods ended March 31, 2021 and 2020:

	March 31, 2021		March 31, 2020
Three Months Ended	$	209,042	$	225,858

The approximate future minimum lease payments under the operating lease are as follows:

Future Minimum Lease Payments
Nine Months   Remaining In
2021		2022		2023		2024		2025		Total
$	468,134	$	624,179	$	624,179	$	624,179	$	156,045	$	2,496,716

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Note 8 Income Taxes

The Company has determined its interim tax provision projecting an estimated annual effective tax rate.

A reconciliation of the statutory federal tax rate to the Company’s effective income tax rate is as follows:

	Three Months Ended   March 31,
	2021		2020
Statutory U.S. federal income tax rate	21.0	%	21.0	%
State and local income taxes, net of federal benefit	4.4	%	4.5	%
Internal revenue code section 162 limitations	1.1	%	2.3	%
Other	—	%	0.2	%
Unconsolidated effective income tax rate	26.5	%	28.0	%
Impact attributable to redeemable noncontrolling interests(a)	(0.8)	%	(58.8)	%
Effective income tax rate	25.7	%	(30.8)	%

(a) The provision for income taxes includes the impact of the operations of the Consolidated Funds, which are not subject to federal income taxes. Accordingly, a portion of the Company’s earnings are not subject to corporate tax levels.

Absent the impact attributable to redeemable noncontrolling interests, the estimated unconsolidated effective income tax rate would have been 26.5%. The Company's actual effective tax rate for fiscal year ended December 31, 2021 could be materially different from the projected rate as of March 31, 2021.

The net temporary differences incurred to date will reverse in future periods as the Company generates taxable earnings. The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets recorded. The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of March 31, 2021 and December 31, 2020, no valuation allowance was deemed necessary.

FASB ASC 740, Income Taxes, prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  The Company recognizes tax benefits related to positions taken, or expected to be taken, on its tax returns, only if the positions are more likely than not sustainable. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. The Company did not record an accrual for tax related uncertainties or unrecognized tax positions as of March 31, 2021 or December 31, 2020.

The Company did not recognize any interest and penalties during the three months ended March 31, 2021.

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Note 9 Earnings Per Share

The Company’s common shares outstanding consist of all shares issued and outstanding, including unvested restricted shares. Basic and diluted EPS are calculated under the two-class method. The following table sets forth the computation for basic and diluted EPS:

	Three Months Ended   March 31,
	2021		2020
Net Income (Loss)	$	14,262,613	$	(2,528,368)
Less: Net loss (income) attributable to redeemable noncontrolling interest	(554,102)		4,058,476
Net income attributable to common shareholders	$	13,708,511	$	1,530,108
Weighted average number of outstanding shares - Basic	3,156,768		3,272,761
Weighted average number of outstanding shares - Diluted	3,156,768		3,272,761
Earnings per share attributable to common shareholders
Basic	$	4.34	$	0.47
Diluted	$	4.34	$	0.47

Note 10 Commitments and Contingencies

The Company indemnifies its directors, officers, and certain employees for certain liabilities that may arise from performance of their duties to the Company. From time to time, the Company is involved in legal matters relating to claims arising in the ordinary course of business. There are currently no such matters pending that the Company believes could have a material adverse effect on its consolidated financial statements.

Additionally, in the normal course of business, the Company enters into agreements that contain a variety of representations and warranties and that provide general indemnification obligations. Certain agreements do not contain any limits on the Company’s liability and could involve future claims that may be made against the Company that have not yet occurred. Therefore, it is not possible to estimate the Company’s potential liability under these indemnities. Further, the Company maintains insurance policies that may provide coverage against certain of these liabilities.

Note 11 Sale of Assets of Diamond Hill's High Yield-Focused Funds

DHCM entered into an asset purchase agreement dated February 2, 2021 (the “Purchase Agreement”) with Brandywine Global Investment Management, LLC (“Brandywine Global”), a specialist investment manager of Franklin Resources, Inc. Pursuant to the Purchase Agreement, Brandywine Global will acquire the businesses of DHCM’s two high yield-focused mutual funds - the Corporate Credit Fund and the High Yield Fund (the “Acquired Funds”).

In connection with the transaction, two of the Company’s portfolio managers and a research analyst will join Brandywine Global’s fixed income team.

Pursuant to the Purchase Agreement, DHCM will receive an initial cash payment at closing of up to $9.0 million based upon the closing date net revenue of the Acquired Funds, and may receive two additional payments of up to $13.0 million in the aggregate based on the net revenue of the Acquired Funds on the one-year anniversary of the closing date. There can be no assurance that all or any of these additional payment amounts will be received by DHCM.

The Purchase Agreement contains customary representations, warranties, and covenants and is subject to customary closing conditions, including a minimum net revenue requirement as of the closing date and approval by the shareholders of the Acquired Funds. The sale is expected to close on July 30, 2021, subject to approval of each Acquired Fund’s shareholders.

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Note 12 Subsequent Events

On April 26, 2021, the Company’s board of directors approved a cash dividend of $1.00 per share payable June 18, 2021, to shareholders of record as of June 3, 2021. This dividend will reduce shareholders' equity by approximately $3.2 million.

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ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Throughout this Quarterly Report on Form 10-Q and other publicly available documents, including the documents incorporated herein by reference, the Company may make forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to such matters as anticipated operating results, AUM prospects and levels, technological developments, economic trends (including interest rates and market volatility), expected transactions and similar matters. The words “believe,” “expect,” “anticipate,” “estimate,” "may," "will," "likely," "project," “should,” “hope,” “seek,” “plan,” “intend” and similar expressions identify forward-looking statements that speak only as of the date thereof. While the Company believes that the assumptions underlying its forward-looking statements are reasonable, investors are cautioned that any of the assumptions could prove to be inaccurate and, accordingly, actual results and experiences could differ materially from the anticipated results or other expectations expressed in the forward-looking statements.

Factors that could cause such actual results or experiences to differ from results discussed in the forward-looking statements include, but are not limited to: (i) any reduction in the Company's AUM; (ii) withdrawal, renegotiation, or termination of investment advisory agreements; (iii) damage to the Company's reputation; (iv) failure to comply with investment guidelines or other contractual requirements; (v) challenges from the competition the Company faces in its business; (vi) adverse regulatory and legal developments; (vii) unfavorable changes in tax laws or limitations; (viii) interruptions in or failure to provide critical technological service by the Company or third parties; (ix) adverse civil litigation and government investigations or proceedings; (x) risk of loss on the Company's investments; (xi) lack of sufficient capital on satisfactory terms; (xii) losses or costs not covered by insurance; (xiii) impairment of goodwill or intangible assets; (xiv) a decline in the performance of our products; (xv) changes in interest rates; (xvi) changes in national and local economic and political conditions; (xvii) the continuing economic uncertainty in various parts of the world; (xviii) the effects of the COVID-19 pandemic and the actions taken in connection therewith; (xix) political uncertainty caused by, among other things, political parties, economic nationalist sentiments, tensions surrounding the current socioeconomic landscape, and other risks identified from time-to-time in other public documents on file with the SEC.

General

The Company derives consolidated revenue and net income from investment advisory and fund administration services provided by DHCM. DHCM is a registered investment adviser under the Investment Advisers Act of 1940, as amended. DHCM sponsors, distributes, and provides investment advisory and related services to clients through the Funds, sub-advised mutual funds, and separately managed accounts.

DHCM is a client-centric organization committed to a set of shared investment principles and core values intended to enable excellent investment outcomes for clients. By committing to valuation disciplined active portfolio management, fundamental bottom-up research, and a long-term business owner mindset, DHCM has created a suite of investment strategies designed for long-term strategic allocations from institutionally-oriented investors. DHCM’s core values of curiosity, ownership, trust, and respect create an environment where investment professionals can focus on results and all teammates focus on the overall client experience. The combination of these investment principles and core values create an aligned boutique model ensuring associates succeed when clients succeed. This alignment with clients is emphasized through: (i) personal investment by Company employees in the strategies managed, (ii) a fee philosophy focused on a fair sharing of the economics among clients, employees, and shareholders, (iii) a strict adherence to capacity discipline ensuring the ability to add value for existing clients, and (iv) compensation driven by the value created.

The Company's primary objective is to fulfill its fiduciary duty to its clients. The Company's secondary objective is to grow its intrinsic value to achieve an adequate long-term return for our shareholders.

Assets Under Management

The Company derives revenue primarily from investment advisory and administration fees. Investment advisory and administration fees paid to the Company are generally based on the value of the investment portfolios it manages and fluctuate with changes in the total value of its AUM. The Company recognizes revenue when it satisfies its performance obligations under the terms of a contract with a client.

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The Company's revenues are highly dependent on both the value and composition of AUM. The following is a summary of the Company's AUM by product and investment objective, as well as a roll-forward of the change in AUM, for the three-months ended March 31, 2021 and 2020:

	Assets Under Management
	As of March 31,
(in millions, except percentages)	2021		2020		% Change
Proprietary funds	$	20,954	$	11,942	75	%
Sub-advised funds	3,575		1,928		85	%
Separately managed accounts	6,053		3,626		67	%
Total AUM	$	30,582	$	17,496	75	%

	Assets Under Management by Investment Strategy
	As of March 31,
(in millions, except percentages)	2021		2020		% Change
Small Cap	$	616	$	443	39	%
Small-Mid Cap	3,128		2,047		53	%
Mid Cap	1,097		604		82	%
Large Cap	18,317		9,372		95	%
Large Cap Concentrated	43		19		126	%
All Cap Select	427		284		50	%
Long-Short	2,028		2,520		(20)	%
Global/International	35		26		35	%
Total Equity	25,691		15,315		68	%
Short Duration Securitized	1,253		726		73	%
Core Fixed Income	550		328		68	%
Long Duration Treasury	47		62		(24)	%
Corporate Credit	2,140		983		118	%
High Yield	965		201		380	%
Total Fixed Income	4,955		2,300		115	%
Total Equity and Fixed Income	30,646		17,615		74	%
(Less: Investments in affiliated funds)(a)	(64)		(119)		(46)	%
Total AUM	$	30,582	$	17,496	75	%

(a) Certain of the Funds own shares of the Diamond Hill Short Duration Securitized Bond Fund. The Company reduces the total AUM by these investments held in this affiliated fund.

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	Change in Assets Under Management
	For the Three Months Ended   March 31,
(in millions)	2021		2020
AUM at beginning of the period	$	26,411	$	23,399
Net cash inflows (outflows)
proprietary funds	1,877		12
sub-advised funds	42		544
separately managed accounts	(175)		(305)
	1,744		251
Net market appreciation (depreciation) and income	2,427		(6,154)
Increase (decrease) during the period	4,171		(5,903)
AUM at end of the period	$	30,582	$	17,496
Average AUM during the period	$	28,163	$	20,836

	Net Cash Inflows Further Breakdown For the Three Months Ended March 31,
(in millions)	2021		2020
Net cash inflows (outflows)
Equity	$	1,256	$	156
Fixed Income	488		95
	$	1,744	$	251

AUM increased $4.2 billion during the three months ended March 31, 2021, due to the continued rebound in the financial markets and net cash inflows into our strategies during the period. In equity strategies, net inflows of $1.6 billion in the Large Cap strategy were slightly offset by net outflows of $0.4 billion in other equity strategies. Each of the Company's fixed income strategies, except Long Duration Treasury, had net inflows during the three months ended March 31, 2021, totaling $0.5 billion.

Effective March 31, 2021, the Company closed its Large Cap strategy to most new investors. In February 2021, the Company made its Large Cap Concentrated strategy available as a new fund in the Fund lineup.

Model Delivery Programs

The Company provides strategy-specific model portfolios to sponsors of model delivery programs. The Company does not have discretionary investment authority over individual client accounts in model delivery programs, and therefore, these assets are not included in its AUM. The Company provides updated model portfolios to the program sponsors on a periodic basis. The Company is paid for its services by the program sponsor at a pre-determined rate based on assets in the program. Model delivery program assets were $1.4 billion as of March 31, 2021, and $1.1 billion as of December 31, 2020.

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Consolidated Results of Operations

The following is a table and discussion of the Company's consolidated results of operations.

	Three Months Ended   March 31,
(in thousands, except per share amounts and percentages)	2021			2020			% Change
Total revenue	$	39,014		$	31,926		22%
Net operating income	13,532			20,465			(34)%
Net operating income, as adjusted(a)	16,635			12,309			35%
Investment income (loss), net	5,663			(22,398)			NM
Net income attributable to common shareholders	13,709			1,530			796%
Earnings per share attributable to common shareholders (diluted)	$	4.34		$	0.47		823%
Operating profit margin	35		%	64		%
Operating profit margin, as adjusted(a)	43		%	39		%

(a) Net operating income, as adjusted, and operating profit margin, as adjusted, are non-GAAP performance measurements. See the "Use of Supplemental Data as Non-GAAP Performance Measure" section within this report.

Summary Discussion of Consolidated Results of Operations - Three Months Ended March 31, 2021, compared with Three Months Ended March 31, 2020

Revenue for the three months ended March 31, 2021, increased $7.1 million, compared to revenue for the same period in 2020, primarily due to an increase in average AUM of 35% period-over-period, partially offset by a decrease in the average advisory fee rate from 0.58% to 0.53%. The decrease in average advisory fee rate was primarily driven by an increase in the mix of assets held in lower fee rate strategies during the three months ended March 31, 2021, compared to the same period in 2020.

Operating profit margin was 35% for the three months ended March 31, 2021, and 64% for the three months ended March 31, 2020. Operating profit margin, as adjusted, was 43% for the three months ended March 31, 2021, and 39% for the three months ended March 31, 2020. Operating profit margin, as adjusted, excludes deferred compensation expense (benefit) from operating income because it is offset by an equal amount in investment income below net operating income on the income statement and thus has no effect on net income attributable to the Company. The Company believes this non-GAAP measure helps the reader to understand its core operating results and increases comparability period-to-period. See "Use of Supplemental Data as Non-GAAP Performance Measure" section within this report.

The Company expects that its operating margin will fluctuate from period to period based on various factors, including revenues, investment results, employee performance, staffing levels, gains and losses on investments held in deferred compensation plans, the ongoing impact of the COVID-19 pandemic, and development of investment strategies, products, or channels. The Company compensates portfolio managers based on long-term performance, so when revenue and long-term performance are misaligned, operating margins can fluctuate materially.

The Company recognized $5.7 million in investment income for the three months ended March 31, 2021, compared with investment losses of $22.4 million for the three months ended March 31, 2020. The change year over year was primarily due to the negative impact that COVID-19 had on the financial markets in March of 2020, and the subsequent market rebound.

Income tax expense increased $4.3 million for the three months ended March 31, 2021, compared to the three months ended March 31, 2020. The increase in income tax expense was primarily due to the increase in the Company's income before taxes.

The provision for income taxes includes the effect of the operations of the Consolidated Funds that are not subject to federal income taxes. Accordingly, a portion of the Company's earnings are not subject to corporate tax. The effective tax rate of 25.7% differed from the federal statutory tax rate of 21% due primarily to state and local taxes in the jurisdictions in which the Company does business.

The Company generated net income attributable to common shareholders of $13.7 million ($4.34 per diluted share) for the three months ended March 31, 2021, compared with net income attributable to common shareholders of $1.5 million ($0.47 per diluted share) for the same period in 2020. The increase in net income and earnings per diluted share was primarily driven by the increase in revenue in the three months ended March 31, 2021, combined with the significant losses on investments during the three months ended March 31, 2020.

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Revenue

	Three Months Ended   March 31,
(in thousands, except percentages)	2021		2020		% Change
Investment advisory	$	36,569	$	30,158	21	%
Mutual fund administration, net	2,445		1,768		38	%
Total	$	39,014	$	31,926	22	%

Investment Advisory Fees. Investment advisory fees for the three months ended March 31, 2021 increased $6.4 million, or 21%, compared to the three months ended March 31, 2020. Investment advisory fees are calculated as a percentage of the market value of client accounts at contractual fee rates, which vary by investment product. The increase in investment advisory fees was primarily due to an increase in average AUM of 35%, partially offset by a decrease in the average advisory fee rate from 0.58% to 0.53% period-over-period. The increase in AUM period-over-period was due primarily to the rebound in the financial markets since the three months ended March 31, 2020. The decrease in average advisory fee rate was driven by an increase in the mix of assets held in lower fee rate strategies during the three months ended March 31, 2021, compared to the same period in 2020.

Mutual Fund Administration Fees. Mutual fund administration fees for the three months ended March 31, 2021 increased $0.7 million, or 38%, compared to the three months ended March 31, 2020. Mutual fund administration fees include administration fees received from the Funds, which are calculated as a percentage of the Funds' average AUM. The increase was primarily due to the increase in the Funds' average AUM for the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

Expenses

	Three Months Ended   March 31,
(in thousands, except percentages)	2021		2020		% Change
Compensation and related costs, excluding deferred compensation expense (benefit)	$	16,815	$	15,417	9	%
Deferred compensation expense (benefit)	3,103		(8,156)		NM
General and administrative	2,816		1,929		46	%
Sales and marketing	1,868		1,456		28	%
Mutual fund administration	880		815		8	%
Total	$	25,482	$	11,461	122	%

Compensation and Related Costs, Excluding Deferred Compensation Expense (Benefit). Employee compensation and benefits for the three months ended March 31, 2021 increased by $1.4 million compared to the three months ended March 31, 2020. This increase was primarily due to an increase in salary and related benefits of $1.0 million, and an increase in incentive compensation of $0.8 million. These increases were partially offset by a decrease in restricted stock expense of $0.4 million.

Deferred Compensation Expense (Benefit). Deferred compensation expense was $3.1 million for the three months ended March 31, 2021, compared to a benefit of $(8.2) million for the three months ended March 31, 2020. The expense in the current period was primarily due to market appreciation on deferred compensation plan investments, while the benefit in the prior period was primarily due to the negative impact COVID-19 had on the financial markets in March of 2020.

The gain (loss) on deferred compensation plan investments increases (decreases) deferred compensation expense (benefit) and is included in operating income. Deferred compensation expense (benefit) is offset by an equal amount in investment income below net operating income on the consolidated statements of income, and thus, has no impact on net income attributable to the Company.

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General and Administrative. General and administrative expense for the three months ended March 31, 2021 increased by $0.9 million, or 46%, compared to the three months ended March 31, 2020. This increase was primarily due to a non-recurring $1.1 million refund related to Ohio commercial activity tax, which was received in the first quarter of 2020 and reduced general and administrative expense for that quarter. The Ohio commercial activity tax is a gross receipts tax, and therefore, is not included in income taxes. This increase was partially offset by a reduction in in travel and related expenses period-over-period.

Sales and Marketing. Sales and marketing expense for the three months ended March 31, 2021 increased by $0.4 million, or 28%, compared to the three months ended March 31, 2020. The increase was primarily due to additional payments of $0.3 million made to third party intermediaries related to the sale of the Company's proprietary funds and increased spending of $0.2 million related to the Company's customer relationship management system and related external data costs. These increases were partially offset by a reduction in sales and marketing travel and related expense of $0.1 million.

Mutual Fund Administration. Mutual fund administration expenses for the three months ended March 31, 2021 increased 8% compared to the three months ended March 31, 2020, primarily due to an increase in mutual fund administration expense from an increase in the average Fund AUM period-over-period.

Liquidity and Capital Resources

Sources of Liquidity

The Company's current financial condition is liquid, with a significant amount of its assets comprised of cash and cash equivalents, investments, accounts receivable, and other current assets. The Company's main source of liquidity is cash flows from operating activities, which are generated from investment advisory and mutual fund administration fees. Cash and cash equivalents, investments held directly by DHCM, accounts receivable, and other current assets represented $199.8 million and $205.1 million of total assets as of March 31, 2021 and December 31, 2020, respectively. The Company believes that these sources of liquidity, as well as its continuing cash flows from operating activities, will be sufficient to meet its current and future operating needs for the next 12 months.

The COVID-19 pandemic could continue to create uncertainty and volatility in the financial markets, which may impact the Company's ability to access capital and liquidity, and the terms under which it can do so.  The Company will continue to assess its liquidity needs as the impact of the COVID-19 pandemic on the economy, the financial markets, and its operations continues to evolve.

Uses of Liquidity

In line with the Company's primary objective to fulfill its fiduciary duty to clients and its secondary objective to achieve an adequate long-term return for shareholders, it anticipates that its main uses of cash will be for operating expenses and seed capital to fund new and existing investment strategies.

The Company's board of directors and management regularly review various factors to determine whether it has capital in excess of that required for its business and the appropriate use of any such excess capital. The factors considered include the Company's investment opportunities, capital needed for investment strategies, share repurchase opportunities, and dividends.

On February 27, 2020, the Company's board of directors approved a share repurchase program (the "2020 Repurchase Program") authorizing management to repurchase up to $50.0 million of the Company's common shares. Under the 2020 Repurchase Program, the Company repurchased $1.9 million of its common shares during the three months ended March 31, 2021. As of March 31, 2021, $33.5 million remains available for repurchase under the 2020 Repurchase Program. The authority to repurchase shares may be exercised from time to time as market conditions warrant, is subject to regulatory constraints, and will expire two years from the date of board approval, or upon the earlier repurchase in full of the authorized amount of shares. The timing, amount, and other terms and conditions of any repurchases will be determined by management in its discretion based on a variety of factors, including the market price of such shares, corporate considerations, general market and economic conditions, legal requirements, and the expected and continued impact of COVID-19.

The Company's board of directors has approved the institution of a regular quarterly dividend beginning the first of quarter 2021. Subject to approval each quarter by the board of directors and compliance with applicable law, the Company expects to pay a regular quarterly dividend of $1.00 per share. On February 25, 2021, the board of directors approved the first quarter dividend of $1.00 per share paid on March 19, 2021, to shareholders of record as of March 11, 2021. This dividend reduced shareholders' equity by approximately $3.1 million. On April 26, 2021, the board of directors approved the second quarter dividend of $1.00 per share to be paid on June 18, 2021, to shareholders of record as of June 3, 2021. This dividend is expected to reduce shareholders' equity by approximately $3.2 million.

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Going forward, at the end of each year, the board of directors will decide whether to pay an additional special dividend. Although the Company currently expects to pay the ongoing quarterly dividends, depending on the circumstances and the board of directors’ judgment, the Company may not pay such dividends as described.

Working Capital

As of March 31, 2021, the Company had working capital of approximately $180.2 million, compared to $168.9 million as of December 31, 2020. Working capital includes cash and cash equivalents, accounts receivable, investments, and other current assets of DHCM, net of accounts payable and accrued expenses, accrued incentive compensation, deferred compensation and other current liabilities of DHCM.

Below is a summary of securities owned by the Company as of March 31, 2021 and December 31, 2020.

	As of
	March 31, 2021		December 31, 2020
Corporate Investments:
Diamond Hill Core Bond Fund	$	45,857,423	$	47,204,636
Diamond Hill Long-Short Fund	18,078,336		16,945,863
Diamond Hill Large Cap Concentrated Fund	10,580,000		—
Diamond Hill Global Fund	11,765,492		11,269,719
Diamond Hill International Fund	10,870,057		10,156,320
Total Corporate Investments	97,151,308		85,576,538
Deferred Compensation Plan Investments in the Funds	33,369,087		33,241,952
Total investments held by DHCM	130,520,395		118,818,490
Investments in Consolidated Funds held by noncontrolling interests	12,174,797		9,582,646
Total Investment Portfolio	$	142,695,192	$	128,401,136

Cash Flow Analysis

Cash Flows from Operating Activities

The Company’s cash flows from operating activities are calculated by adjusting net income to reflect other significant operating sources and uses of cash, certain significant non-cash items (such as share-based compensation), and timing differences in the cash settlement of operating assets and liabilities. The Company expects that cash flows provided by operating activities will continue to serve as its primary source of working capital in the near future.

For the three months ended March 31, 2021, net cash used in operating activities totaled $15.7 million. Cash outflows from operating activities were primarily driven by a $19.6 million payment of incentive compensation in the first quarter of 2021, securities purchased by the Consolidated Funds of $11.5 million, and the cash impact of timing differences in the settlement of assets and liabilities of $0.6 million. These outflows were partially offset by net income of $14.3 million, the add back of share-based compensation of $1.5 million and depreciation of $0.2 million. Absent the cash used in operations by the Consolidated Funds, cash flows used by operations were $5.5 million.

For the three months ended March 31, 2020, net cash provided by operating activities totaled $2.0 million. Cash inflows provided by operating activities was primarily due to adding back the net losses on investments of $23.2 million and non-cash expenses of $2.7 million to the Company's net loss of $2.5 million. This was partially offset by the decrease in accrued incentive compensation of $15.8 million due to the payment of bonuses in the first quarter of 2020 and the cash impact of timing differences in the settlement of assets and liabilities of $5.6 million. Absent the cash used in operations by the Consolidated Funds, cash flow provided by operations was $3.3 million.

Cash Flows from Investing Activities

The Company’s cash flows from investing activities consist primarily of capital expenditures and purchases and redemptions in our investment portfolio.

Cash flows provided by investing activities totaled $1.6 million for the three months ended March 31, 2021. Cash flows provided by investing activites were primarily driven by proceeds from the redemption of investments totaling $3.9 million,

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partially offset by corporate investments purchases of $1.9 million and property and equipment purchases (primarily capitalized software) of $0.4 million.

Cash flows provided by investing activities totaled $12.1 million for the three months ended March 31, 2020. Cash flows provided by investing activity were primarily driven by proceeds from the redemption of investments totaling $23.2 million, partially offset by corporate investment purchases of $10.9 million and property and equipment purchases of $0.2 million.

Cash Flows from Financing Activities

The Company’s cash flows from financing activities consist primarily of the repurchase of its common shares, shares withheld related to employee tax withholding, dividends paid on its common stock, and distributions to, or contributions from, redeemable noncontrolling interest holders.

For the three months ended March 31, 2021, net cash used in financing activities totaled $4.2 million, consisting of the payment of quarterly dividends totaling $3.1 million, repurchases of the Company’s common shares of $1.9 million, and the value of shares withheld related to employee tax withholding of $0.3 million. These cash outflows were partially offset by net subscriptions received in the Consolidated Funds from redeemable noncontrolling interest holders of $0.7 million, and proceeds received under our ESPP of $0.3 million.

For the three months ended March 31, 2020, net cash used in financing activities totaled $10.0 million, consisting of repurchases of the Company’s common shares of $9.2 million, net redemptions received in the Consolidated Funds from redeemable noncontrolling interest holders of $0.6 million, and the value of shares withheld related to employee tax withholding of $0.2 million.

Supplemental Consolidated Cash Flow Statement

The Company's consolidated balance sheets reflect the investments and other assets and liabilities of the Consolidated Funds, as well as redeemable noncontrolling interests for the portion of the Consolidated Funds that are held by third-party investors. Although the Company can redeem its net interest in the Consolidated Funds at any time, the Company cannot directly access or sell the assets held by the Consolidated Funds to obtain cash for general operations. Additionally, the assets of the Consolidated Funds are not available to our general creditors.

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The following table summarizes the condensed cash flows for the three months ended March 31, 2021 that are attributable to the Company and to the Consolidated Funds, and the related eliminations required in preparing the consolidated statements.

	Three Months Ended March 31, 2021
	Cash flow attributable to Diamond Hill Investment Group, Inc.		Cash flow attributable to Consolidated Funds		Eliminations		As reported on the Consolidated Statement of Cash Flows
Cash flows from Operating Activities:
Net Income	$	13,708,511	$	2,475,016	$	(1,920,914)	$	14,262,613
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	218,731		—		—		218,731
Share-based compensation	1,481,578		—		—		1,481,578
Net (gains)/losses on investments	(4,651,219)		(2,475,016)		1,920,914		(5,205,321)
Net change in securities held by Consolidated Funds	—		(11,456,604)		—		(11,456,604)
Other changes in assets and liabilities	(16,260,840)		1,299,338		—		(14,961,502)
Net cash used in operating activities	(5,503,239)		(10,157,266)		—		(15,660,505)
Net cash (used in) provided by investing activities	(7,830,682)		—		9,418,555		1,587,873
Net cash (used in) provided by financing activities	(4,956,596)		10,157,266		(9,418,555)		(4,217,885)
Net change during the period	(18,290,517)		—		—		(18,290,517)
Cash and cash equivalents at beginning of period	98,478,202		—		—		98,478,202
Cash and cash equivalents at end of period	$	80,187,685	$	—	$	—	$	80,187,685

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Use of Supplemental Data as Non-GAAP Performance Measure

As supplemental information, the Company is providing performance measures that are based on methodologies other than GAAP (“non-GAAP”). The Company believes the non-GAAP measures below are useful measures of its core business activities, are important metrics in estimating the value of an asset management business, and may enable more appropriate comparisons to its peers. These non-GAAP measures should not be used as a substitute for financial measures calculated in accordance with GAAP and may be calculated differently by other companies. The following schedule reconciles GAAP measures to non-GAAP measures for the three-months ended March 31, 2021 and 2020, respectively.

	Three Months Ended   March 31,
(in thousands, except percentages and per share data)	2021			2020
Total revenue	$	39,014		$	31,926
Net operating income, GAAP basis	$	13,532		$	20,465
Non-GAAP adjustment:
Gains (losses) on deferred compensation plan investments, net(1)	3,103			(8,156)
Net operating income, as adjusted, non-GAAP basis(2)	16,635			12,309
Non-GAAP adjustment:
Tax provision on net operating income, as adjusted, non-GAAP basis(3)	(4,402)			(3,448)
Net operating income, as adjusted, after tax, non-GAAP basis(4)	$	12,233		$	8,861
Net operating income, as adjusted after tax per diluted share, non-GAAP basis(5)	$	3.87		$	2.71
Diluted weighted average shares outstanding, GAAP basis	3,157			3,273
Operating profit margin, GAAP basis	35		%	64		%
Operating profit margin, as adjusted, non-GAAP basis(6)	43		%	39		%

(1) Gains (losses) on deferred compensation plan investments, net: The gain (loss) on deferred compensation plan investments, which increases (decreases) deferred compensation expense included in operating income, is removed from operating income in the calculation because it is offset by an equal amount in investment income (loss) below net operating income on the income statement, and thus, has no impact on net income attributable to the Company.

(2) Net operating income, as adjusted: This non-GAAP measure represents the Company’s net operating income adjusted to exclude the impact on compensation expense of gains and losses on investments in the deferred compensation plan.

(3) Tax provision on net operating income, as adjusted: This non-GAAP measure represents the tax provision, excluding the impact of investment related activity, and is calculated by applying the unconsolidated effective tax rate to net operating income, as adjusted.

(4) Net operating income, as adjusted, after tax: This non-GAAP measure deducts from the net operating income, as adjusted, the tax provision on net operating income, as adjusted.

(5) Net operating income, as adjusted after tax per diluted share: This non-GAAP measure was calculated by dividing the net operating income, as adjusted after tax, by diluted weighted average shares outstanding.

(6) Operating profit margin, as adjusted: This non-GAAP measure was calculated by dividing the net operating income, as adjusted, by total revenue.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements. The Company does not have any obligation under a guarantee contract, a retained or contingent interest in assets, or any similar arrangement that serves as credit, liquidity, or market risk support for such assets, or any other obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument or arising out of a variable interest.

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Critical Accounting Policies and Estimates

For a summary of the critical accounting policies important to understanding the condensed consolidated financial statements, please see Note 2, Significant Accounting Policies, in the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, and Critical Accounting Policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as Note 2, Significant Accounting Policies, in the 2020 Form 10-K.

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

For information regarding the Company’s exposure to certain market risks, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended December 31, 2020. Except as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations, there have been no significant changes in the Company’s market risk exposures since our December 31, 2020 year end.

ITEM 4: Controls and Procedures

Management, including the Chief Executive Officer and the Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. We continue to monitor and assess the impact, if any, that the COVID-19 pandemic and the related economic impacts could have on the design and operating effectiveness of our internal controls.

PART II: OTHER INFORMATION

ITEM 1: Legal Proceedings

From time to time, the Company is party to ordinary, routine litigation that is incidental to its business. There are currently no such matters pending that the Company believes could have a material adverse effect on its consolidated financial statements.

ITEM 1A: Risk Factors

There has been no material changes to the Company's risk factors from the information disclosed in Item 1A of the Company’s Annual Report on form 10-K for the year ended December 31, 2020.

ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended March 31, 2021, the Company did not sell any common shares that were not registered under the Securities Act. The following table sets forth information regarding the Company’s repurchases of its common shares during the quarter ended March 31, 2021:

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Period	Total Number of Shares Purchased for Employee Tax Withholdings(a)	Total Number of Shares  Purchased as part of Publicly Announced Programs(b)	Average Price Paid Per Share Purchased Under the Programs		Aggregate Purchase Price of Shares  Purchased Under the Programs		Approximate Dollar Value of the Shares That May Yet Be Purchased Under the Program
January 1, 2021 through January 31, 2021	1,729	—	—		—		$	35,375,676
February 1, 2021 through February 28, 2021	—	—	—		—		35,375,676
March 1, 2021 through March 31, 2021	—	12,529	$	151.10	$	1,893,146	$	33,482,530
Total	1,729	12,529	$	151.10	$	1,893,146

(a)The Company regularly withholds common shares for tax payments due upon the vesting of employee restricted stock. During the quarter ended March 31, 2021, the Company purchased 1,729 common shares for employee tax withholdings at an average price paid per share of $149.27.

(b)On February 27, 2020, the Company announced the 2020 Repurchase Program, pursuant to which our board of directors authorized management to repurchase up to $50.0 million of the Company’s common shares in the open market and in private transactions in accordance with applicable securities laws. The 2020 Repurchase Program will expire in February 2022, or upon the earlier completion of all authorized purchases under such program.

The Company has entered into a Rule 10b5-1 repurchase plan. This plan is intended to qualify for the safe harbor under Rule 10b5-1 of the Exchange Act.  A Rule 10b5-1 plan allows a company to purchase its shares at times when it would not ordinarily be in the market because of its trading policies or the possession of material nonpublic information. Because the repurchases under the 10b5-1 plan are subject to specified parameters and certain price, timing, and volume restraints specified in the plan, there is no guarantee as to the exact number of shares that will be repurchased or that there will be any repurchases at all pursuant to the plan. Purchases may be made in the open market or through privately negotiated transactions. Purchases in the open market will be made in compliance with Rule 10b-18 under the Exchange Act.

Through March 31, 2021, the Company has repurchased 141,918 of the Company's common shares under the 2020 Repurchase Program at a total cost of $16.5 million.

ITEM 3: Defaults Upon Senior Securities

None.

ITEM 4: Mine Safety Disclosures

Not applicable.

ITEM 5: Other Information

None.

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ITEM 6: Exhibits

3.1	Amended and Restated Articles of Incorporation of the Company (Incorporated by reference from Exhibit 3(i) to the Current Report on Form 8-K filed with the SEC on May 7, 2002) (File No. 000-24498).
3.2	Certificate of Amendment by Shareholders to the Articles of Incorporation of the Company (Incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on April 28, 2017) (File No. 000-24498).
3.3	Amended and Restated Code of Regulations of the Company (Incorporated by reference from Exhibit 3.2 to the Current Report on Form 8-K filed with the SEC on April 28, 2017) (File No. 000-24498).
10.1	Asset Purchase Agreement By and Between Brandywine Global Investment Management, LLC and Diamond Hill Capital Management, Inc.
31.1	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
31.2	Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
32.1	Section 1350 Certifications. (Furnished herewith)
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

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DIAMOND HILL INVESTMENT GROUP, INC.

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.

DIAMOND HILL INVESTMENT GROUP, INC.

Date	Title	Signature
April 26, 2021	Chief Executive Officer and President	/s/ Heather E. Brilliant
		Heather E. Brilliant
April 26, 2021	Chief Financial Officer and Treasurer	/s/ Thomas E. Line
		Thomas E. Line

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EX-10.1

ASSET PURCHASE AGREEMENT

By and between

BRANDYWINE GLOBAL INVESTMENT MANAGEMENT, LLC

(a Delaware limited liability company),

and

DIAMOND HILL CAPITAL MANAGEMENT, INC.

(an Ohio corporation)

Dated as of February 2, 2021

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “Agreement”), is made and entered into as of February 2, 2021, by and between Diamond Hill Capital Management, Inc., an Ohio corporation (the “Seller”) and Brandywine Global Investment Management, LLC, a Delaware limited liability company (the “Purchaser”).

WHEREAS, the Seller desires to sell to the Purchaser and the Purchaser desires to purchase from the Seller, certain property and assets, tangible and intangible, of the Seller on the terms and subject to the conditions set forth in this Agreement;

NOW, THEREFORE, the parties hereto agree as follows:

1.    Asset Purchase.

a.Sale and Purchase.Subject to the terms and conditions of this Agreement, at the Closing (as defined in Section 1.2(a)), the Seller shall convey, transfer, set over, assign and deliver to the Purchaser, free and clear of all liens, attachments, charges, and encumbrances of any nature (except as may otherwise expressly be permitted by this Agreement), and the Purchaser shall purchase from the Seller, for the Initial Purchase Price and any Additional Payments (each as defined in Section 1.4 below), all of the Books and Records (as defined in Section 1.4 below) (i) of the Diamond Hill Corporate Credit Fund (the “CC Fund”);(ii) of the Diamond Hill High Yield Fund (the “HY Fund”, and together with the CC Fund, each a “Fund” and together the “Funds”); (iii) of all current and historic institutional separate accounts related to the strategy of each Fund (the “Institutional Separate Accounts”); (iv) that are necessary to maintain a composite track record that complies with the Global Investment Performance Standards (“GIPS”, and the relevant books and records, “GIPS Data”); and (v) of the institutional investors listed on Schedule 1.1 (each, an “Institutional Prospect” and collectively, the “Institutional Prospects”) ((i), (ii), (iii), (iv) and (v) collectively, the “Purchased Assets”).

1.2    Closing.

(a)    The closing of the sale and purchase of the Purchased Assets (the “Closing”) will take place remotely via the electronic exchange of documents and signatures at 3:00pm Eastern Time, on the last Business Day (as defined in Section 1.4) of the month following the satisfaction and/or waiver of the conditions set forth in Section 5, or at such other date and time as the parties shall have agreed to in writing. The date on which the Closing shall occur is hereinafter referred to as the “Closing Date.” The Closing shall be effective as of 11:59 p.m. Eastern Time on the Closing Date.

(b)    The Purchaser shall deliver to the Seller aggregate consideration of up to $22,000,000, consisting of the Initial Purchase Price, and, if applicable, the Additional Payments.

1.3    Additional Consideration.

(a)    As further consideration for the sale of the Purchased Assets to the Purchaser at the Closing, the Purchaser shall make, as applicable, the Retention Payment set forth in Section 1.3(a)(i) below, and the Growth Payment set forth in Section 1.3(a)(ii) below (each such payment, an “Additional

2

Payment” and together, the “Additional Payments”) following the first anniversary of the Closing Date (the “Anniversary Date”):

(i)    Retention Payment. Purchaser shall make an additional retention payment (the “Retention Payment”) to Seller as follows:

(A)    if the Anniversary Date Net Revenues are less than or equal to 75% of the Base Date Net Revenues, no Retention Payment will be made;

(B)    if the Anniversary Date Net Revenues are between 75% and 100% of the Base Date Net Revenues, a Retention Payment in an amount equal to the amount interpolated (based on such Anniversary Date Net Revenues) on a straight line between (I) if the Anniversary Date Net Revenues are 75% of the Base Date Net Revenues, a Retention Payment of $0, and (II) if the Anniversary Date Net Revenues are equal to the Base Date Net Revenues, a Retention Payment of $9,000,000; and

(C)     if the Anniversary Date Net Revenues are greater than the Base Date Net Revenues, a Retention Payment in an amount equal to $9,000,000.

For illustrative purposes only, using the interpolation described in Section 1.3(a)(i)((B) above, in the event that the Anniversary Date Net Revenues are 91.5% of the Base Date Net Revenues, Seller would receive a Retention Payment of $5,940,000.

(ii)    Growth Payment. Purchaser shall make an additional growth payment (the “Growth Payment”) to Seller as follows:

(A)    if the Anniversary Date Net Revenues are less than or equal to the Base Date Net Revenues, no Growth Payment will be made;

(B)    if the Anniversary Date Net Revenues are between 100% and 125% of the Base Date Net Revenues, a Growth Payment in an amount equal to the amount interpolated (based on such Anniversary Date Net Revenues) on a straight line between (I) if the Anniversary Date Net Revenues are 100% of the Base Date Net Revenues, a Growth Payment of $0, and (II) if the Anniversary Date Net Revenues are equal to 125% of the Base Date Net Revenues, a Growth Payment of $4,000,000; and

(C)     if the Anniversary Date Net Revenues are 125% or greater of the Base Date Net Revenues, a Growth Payment in an amount equal to $4,000,000.

For illustrative purposes only, using the interpolation described in Section 1.3(a)(ii)((B) above, in the event that the Anniversary Date Net Revenues are 117.5% of the Base Date Net Revenues, Seller would receive a Growth Payment of $2,800,000.

(b)    For the avoidance of doubt, the Growth Payment and Retention Payment shall be calculated separately, and any Growth Payment payable by Purchaser to Seller shall be in addition to, and not in lieu of, any Retention Payment payable by Purchaser to Seller.

(c)     As promptly as practicable (and in any event within fifteen (15) Business Days) following the Anniversary Date, the Purchaser shall deliver to the Seller a written statement (the “Anniversary Date Payment Statement”) setting forth the Anniversary Date Net Revenues, and the amount of any Additional Payments (including a calculation of the components thereof in reasonable detail) owed pursuant to Section 1.3. The Seller (and its agents and advisors) shall have reasonable

3

access, during normal business hours and with reasonable notice, to review (and copy) the work papers, schedules, memoranda and other documents and information prepared or reviewed by or for the Purchaser in connection with the preparation of the Anniversary Date Payment Statement and the calculation of the amounts of any Additional Payments and to communicate with those Persons who conducted such preparation and review, and the Purchaser shall (and shall cause its Affiliates, accountants and other outside service providers to) cooperate in good faith with the Seller and its agents and advisors, and provide them with reasonable access, during normal business hours and with reasonable notice, to the books and records of the Purchaser and such other information as they may reasonably request, in each case in connection with their review of the Anniversary Date Payment Statement.

(d)    Within twenty (20) Business Days after the Seller’s receipt of the Anniversary Date Payment Statement, the Seller shall notify the Purchaser in writing of any objection to such Anniversary Date Payment Statement, specifying the aggregate amount of any additional payment sought and describing in reasonable detail the basis for the demand (an “Anniversary Date Payment Protest Notice”). The Purchaser and Seller shall then negotiate in good faith to attempt to resolve the dispute set forth in such Anniversary Date Payment Protest Notice. If no Anniversary Date Payment Protest Notice is delivered to the Purchaser within such twenty (20) Business Day period, the Seller shall be deemed to have agreed to, and to have waived any and all objections to, such Anniversary Date Payment Statement as prepared by the Purchaser, and such Anniversary Date Payment Statement shall be final and binding on all parties hereto.

(e)    Any Additional Payment(s) shall be paid by the Purchaser to the Seller promptly (and in any event within three (3) Business Days) following the final determination of the amount thereof pursuant to the process set forth above, by wire transfer of immediately available funds to bank accounts designated in writing by the Seller.

(f)     Notwithstanding anything contained herein to the contrary, if, prior to the Anniversary Date: (i) one or both of the Acquiring Funds (as defined below): (A) is sold or otherwise transferred to an unaffiliated third party, (B) is closed or liquidated, or (C) is merged with or into another fund owned or managed by Purchaser or any of its Affiliates other than as contemplated by the Reorganizations ; (ii) Purchaser or any of its Affiliates ceases to provide advisory and/or management services to either of the Acquiring Funds; or (iii) Purchaser breaches Section 6.2. of this Agreement, in any such case the Purchaser shall pay to Seller the Liquidated Payment Amount in cash by wire transfer of immediately available funds to one or more bank accounts designated by the Seller, whereupon this Agreement (and all rights and obligations of the parties hereto) shall terminate.

    1.4    Definitions. In addition to the terms otherwise defined elsewhere in this Agreement, the following terms shall have the meanings given below:

        “Acquiring Funds” means the two open-end management companies, having investment strategies similar to those of the Funds, that are to be formed for purposes of the Reorganizations and, on or prior to the Closing Date, are to be registered under the Investment Company Act and managed by the Purchaser.

“Advisers Act” means the Investment Advisers Act of 1940, as amended, and the rules and regulations promulgated thereunder.

“Affiliate” means, with respect to a specified entity, all Persons directly or indirectly controlling, controlled by or under common control with such Person, where control may be by either management authority, contract or equity interest. No Person shall be considered an “Affiliate” of the

4

Purchaser unless such Person has actually received information from the Purchaser prior to the date hereof about this Agreement and the transactions contemplated thereby.

“Anniversary Date Net Revenues” means the combined aggregate Net Revenues of the Acquiring Funds and the Institutional Prospects as of the Anniversary Date.

“Applicable Law” means, with respect to any Person, any statute, law, ordinance, rule, regulation, order, writ, injunction, directive, judgment, decree or other requirement of any Governmental Authority (including, but not limited to, anti-bribery laws, anti-money laundering laws, the Securities Act, the Exchange Act, the Investment Company Act, the Advisers Act, any applicable requirements of the relevant exchange and any applicable rules or regulations of the Financial Industry Regulatory Authority, Inc. (“FINRA”)) to the extent applicable to such Person or any of its properties, assets, officers, directors or employees.

“AUM” means, with respect to each of the Funds, the Acquiring Funds, or Institutional Prospects, as applicable, the assets under management of such Fund, Acquiring Fund, or Institutional Prospect as of any date of determination.

“Base Date AUM” means the $1,870,000,000 AUM of the CC Fund and the $640,000,000 AUM of the HY Fund, which together equals a combined aggregate AUM for the Funds of $2,510,000,000.

“Base Date Net Revenues” means the Funds’ combined aggregate Net Revenues of $11,008,200.

“Books and Records” means originals or copies of all books and records (in whatever form maintained) that are both maintained by the Seller and/or the Funds’ distributor and relate primarily to the business of the Funds, the Institutional Separate Accounts, the GIPS Data, and the Institutional Prospects, including, without limitation, all documents required to be maintained by the Seller pursuant to the Investment Company Act and Advisers Act, all marketing materials, investment performance materials, client relationship management data, consultant data, and all information and back-up data necessary to calculate and reflect the historical investment performance of the Funds and a composite track record that complies with GIPS.

“Business Day” means any day other than a Saturday, a Sunday, a legal holiday, or other day on which banking institutions or trust companies are authorized or obligated by law in the State of New York or by other governmental action to close.

“Closing Date Net Revenues” means the Funds’ combined aggregate Net Revenues as of the Closing Date.

“Code” means the Internal Revenue Code of 1986, as amended.

“Employment Agreement” means each of the employment agreements dated as of the date hereof and effective as the Closing Date, between Purchaser and each of the individuals named on Schedule 5.4(b).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

5

“Fixed Net Management Fee” means 0.422% in the case of the CC Fund, and 0.487% in the case of the HY Fund.

“Fund Financial Statements” means: (a) the audited financial statements of each Fund for the fiscal years ended in 2017, 2018 and 2019, as applicable, together with reports on such year-end statements by each Fund’s independent registered public accountants, including a statement of assets and liabilities and schedule of investments and a statement of operations; and (b) the unaudited financial statements of each Fund for the semi-annual period ended June 30, 2020, including a statement of changes in net assets and schedule of investments, in each case as determined in accordance with GAAP.

“Fundamental Representations” means each of the representations and warranties included in Sections 2.1-2.3; 2.8 (a), (g), (k) and (m); and 3.1-3.3.

“GAAP” means generally accepted accounting principles as used in the United States of America as in effect at the time any applicable financial statements were prepared or any act requiring the application of GAAP was performed applied on a consistent basis.

“Governmental Authority” means any nation, state, territory, province, county, city or other unit or subdivision thereof or any entity, authority, agency, department, board, commission, instrumentality, court or other judicial body authorized on behalf of any of the foregoing to exercise legislative, judicial, regulatory or administrative functions of or pertaining to government, and any governmental or nongovernmental self-regulatory organization of which the Person was or is a member or to whose regulations the Person was or is subject.

“Initial Purchase Price” means an amount equal to $9,000,000; provided, however, that if the Closing Date Net Revenues are equal to or more than 70% but less than 95% of the Base Date Net Revenues, the Initial Purchase Price shall be an amount equal to: (i) $9,000,000, multiplied by (ii) the percentage obtained by dividing (A) the Closing Date Net Revenues by (B) the Base Date Net Revenues. For the avoidance of doubt, if the Closing Date Net Revenues are 95% or more of the Base Date Net Revenues, the Initial Purchase Price shall be $9,000,000.

“Investment Company Act” means the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder.

“Liquidated Payment Amount” means $13,000,000 reflecting the combined aggregate of the maximum $9,000,000 Retention Payment and $4,000,000 Growth Payment under this Agreement.

“Net Revenue” means, (i) for each Fund, as of any date of determination: (A) the Fixed Net Management Fee for the Fund, multiplied by (B) the AUM for the Fund and (ii) for each Institutional Prospect, as of any date of determination, an amount equal to 25% of: (A) the fee rate stated in the investment management agreement (or equivalent document) for such Institutional Prospect, multiplied by (B) the AUM of such Institutional Prospect.

“Person” means any individual, partnership, corporation, limited liability company, joint venture, trust, unincorporated organization, association or other entity or any Governmental Authority.

“SEC” means the Securities and Exchange Commission.

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“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Separation Agreement” means each of the separation agreements dated as of the date hereof, between Seller and each of the individuals named on Schedule 5.4(b).

“Tax Representations” are those representations included in Sections 2.8(i) and 4.2.

“Tax Return” means any report, return, information statement, claim for refund, document, declaration or other information or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes, including, without limitation, any schedule or attachment thereto or amendment thereto.

“Taxes” means any and all taxes, charges, fees, levies or other assessments, including income, gross receipts, excise, severance, stamp, premium, windfall profits, environmental, customs duties, capital stock, real or personal property, capital gains, employment, sales, withholding, social security (or similar), unemployment, disability, registration, add-on minimum, estimated, occupation, use, service, service use, value added, license, net worth, payroll, franchise, escheat, abandoned property, transfer and recording taxes, fees and charges, imposed by any taxing authority (whether domestic or foreign including any state, local or foreign government or any subdivision or taxing agency thereof (including a United States possession)), whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments, whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the Tax liability of any other Person.

2    Representations and Warranties of the Seller. The Seller represents and warrants to the Purchaser as follows:

2.1    Corporate Status and Authority.   The Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Ohio and has the corporate power and authority to own the Purchased Assets and to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery, and performance of the Seller’s obligations under this Agreement have been duly authorized by the Seller’s sole director, which constitutes all necessary corporate action on the part of the Seller for such authorization. This Agreement has been duly executed and delivered by the Seller and constitutes the valid and binding obligation of the Seller, except as limited by laws affecting the enforcement of creditor’s rights generally or by general equitable principles.

2.2    No Conflicts, Consents and Approvals, etc.

(a)    The execution and delivery of this Agreement by the Seller and the performance of its obligations hereunder will not result in: (i) any conflict with the articles of incorporation, (ii) any breach or violation of, or default under, any Applicable Law, or other governmental authorization or any mortgage, lease, agreement, deed of trust, indenture or any other instrument to which the Seller is a party or by which the Seller or any of its properties or assets are bound, or (iii) the creation or imposition of any lien, except in the case of the foregoing (ii) and (iii) for such breaches, violations or defaults, and such

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liens, which would not, individually or in the aggregate, impair the ability of the Seller to fulfill its obligations hereunder.

(b)    Except as provided in Section 4.4 below, no consent, approval or authorization of, or filing with any third party or governmental authority is required on the part of the Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

2.3    No Liens on Purchased Assets. The Seller owns outright, and has good and marketable title to, the Purchased Assets free and clear of all liens, pledges, mortgages, security interests, conditional sales contracts or other encumbrances or conflicting claims of any nature whatsoever, except as set forth in Schedule 2.3 hereto which liens shall be removed on or before the Closing Date.

2.4    Investment Advisory Matters.

(a)    The Seller has adopted a formal code of ethics, a written policy regarding insider trading and other policies and procedures required to be adopted under Rule 206(4)-7 under the Advisers Act and, with respect to such code of ethics, Rule 17j-1 under the Investment Company Act. Such code of ethics complies in all material respects with Rule 204A-1 under the Advisers Act and Rule 17j-1 under the Investment Company Act. There have been no material violations of such code of ethics, and the Seller has not received a written notice from any Governmental Authority: (i) asserting any material violation of such codes of ethics, or (ii) indicating that the Seller is under any investigation by any Governmental Authority for any alleged violation of such code of ethics. The policies and procedures of the Seller with respect to avoiding conflicts of interest, or the conflicts of interest that exist, as the case may be, are described in its most recent Form ADV (or incorporated by reference therein), as amended. As of the date of this Agreement and since the formation of the Funds, there have been no material violations of such policies.

(b)    None of the Seller or any other Person “associated” (as defined under the Advisers Act) with the Seller: (i) is ineligible under the Advisers Act to serve as a Person associated with a registered investment adviser, and (ii) has been convicted of any crime or is or has been subject to any disqualification that would be a basis for denial, suspension or revocation of registration of an investment adviser under Section 203(e) of the Advisers Act, and to the Seller’s knowledge, there is no basis for any such disqualification, denial, suspension or revocation.

(c)    None of the Seller or any of its directors, officers or employees, is subject to any cease and desist, censure or other disciplinary or similar order issued by, or is a party to any written agreement, consent agreement, memorandum of understanding or disciplinary agreement with, or is a party to any commitment letter or similar undertaking to, or subject to any order or directive by, or a recipient of any supervisory letter from, any governmental authority with respect to the business of the Funds.

(d)    The Seller and each of its directors, officers and employees has complied in all material respects with, and has not been and is not now in violation in any material respect of, Applicable Law, except for violations, if any, that individually and in the aggregate, have not been, and would not reasonably be expected to be material to the business of the Funds. Neither the Seller nor any of its directors, officers or employees has received any written notice relating to any alleged violation of any Applicable Law from any Governmental Authority, or of any investigation with respect thereto, except

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for violations, if any, that, individually and in the aggregate, have not been, and would not reasonably be expected to be, material to the business of the Funds.

(e)    The Seller is, and at all times since it has served as the investment advisor to each of the Funds has been, duly registered under the Advisers Act as an investment adviser with the SEC. The Seller is, and at all times since each Fund’s inception has been, duly registered, licensed, qualified or has made a notice of filing as an investment adviser in each jurisdiction where the conduct of its business requires such registration or notice filing. The Seller has delivered the Purchaser true and complete copies of its most recent Form ADV, as amended to date. The information contained therein was true and complete in all material respects at the time of filing and the Seller has made all amendments to such Form ADV as it is required to make under Applicable Laws except as has not been, and would not reasonably be expected to be, material to the business of either Fund.

(f)    The Prohibited Transaction Class Exemption 84-14 issued by the U.S. Department of Labor (“QPAM Exemption”) is not unavailable with respect to transactions negotiated by or under the authority and general direction of the Seller as a “qualified professional asset manager” (as defined in the QPAM Exemption) by virtue of: (i) the application of Section I(e) of the QPAM Exemption, or (ii) the application of Section I(g) of the QPAM Exemption, and the consummation of the transactions contemplated hereby will not cause the QPAM Exemption to be unavailable to the Purchaser or its Affiliates by virtue thereof.

2.5     Litigation. There are no judicial or administrative actions, proceedings or investigations pending or, to the knowledge of the Seller, threatened, which question the validity of this Agreement or any action taken or to be taken by the Seller in connection herewith.

2.6     Solvency. Immediately after giving effect to the Closing, the Seller’s total assets will exceed the sum of the Seller’s liabilities.

2.7    Anti-Corruption Laws. None of the Seller or, to the Seller’s knowledge, any employee of the Seller, has, in the past two years, violated or been convicted of violating the United States Foreign Corrupt Practices Act of 1977, as amended, and any other similar laws concerning or relating to bribery or corruption, other than any such violations would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Seller or the Funds.

2.8.     Matters Relating to the Funds.

(a)    Each Fund, since it was required to be registered under the Investment Company Act, has been continuously: (i) registered as an open-end management company under the Investment Company Act, (ii) in material compliance with all Applicable Laws including: (A) the Investment Company Act, the Securities Act and the Exchange Act, and (B) the laws of each jurisdiction in which shares of such Fund have been offered for sale or sold, (iii) in material compliance with such Fund’s fundamental and non-fundamental investment policies, investment objective, principal investment strategies and investment restrictions as from time to time in effect, and (iv) duly registered or licensed and in good standing under the laws of each jurisdiction in which qualification is necessary, except where the failure to be in such material compliance or the failure to be duly registered and in good standing has not been, and would not reasonably be expected to be, material to the business of such Fund. Without limiting the generality of the foregoing, each Fund has maintained true and correct records as required by the Investment Company Act, the Advisers Act, the rules of FINRA or the SEC and any other Applicable Law, except where the failure to maintain such records has not been, and would not reasonably be

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expected to be, material to the business of such Fund. There are no special restrictions, consent judgments, SEC or judicial orders on or against or with regard to either of the Funds in effect, nor have there been any for the past three years. All copies of exemptive orders or no-action letters issued with respect to, or on which, either Fund relies have been provided to the Purchaser.

(b)    Neither the Seller nor any “affiliated person” (as defined in the Investment Company Act) of the Seller or any of the Funds receives or is entitled to receive any compensation directly or indirectly: (i) from any Person in connection with the purchase or sale of securities or other property to, from or on behalf of either of the Funds, other than bona fide ordinary compensation as a broker in connection with the purchase or sale of securities in compliance with Section 17(e) of the Investment Company Act, or (ii) from either of the Funds or such Fund’s security holders for other than bona fide investment advisory, administrative or other services. Accurate disclosure (that does not omit any material information required to be disclosed under Applicable Law) of all such compensation arrangements has been made in the registration statement of each Fund filed with the SEC.

(c)    Except as set forth in Schedule 2.8(c), there are no agreements or understandings in effect pursuant to which the Seller has capped, waived, or reimbursed or is required under any circumstances to cap, waive or reimburse any or all advisory fees or expenses payable by either of the Funds, and no such arrangements have been requested in writing of Seller by the Board of Trustees of the Funds.

(d)    Neither of the Funds is or has been, a party to any, and there are and have not been any, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature pending or threatened in writing against or relating to either of the Funds that has been, or would reasonably be expected to be, material to the business of such Fund or that challenge any of the transactions contemplated by this Agreement. There is no injunction, order, judgment, decree, or regulatory restriction in effect with respect to either of the Funds that has been, or would reasonably be expected to be, material to the business of such Fund.

(e)    Each of the Funds has adopted a formal code of ethics, as required by Rule 17j-1 under the Investment Company Act. There have been no material violations of such code of ethics. Neither of the Funds has received a written notice from any Governmental Authority: (i) asserting any material violation by any such codes of ethics; or (ii) indicating that either Fund is under any investigation by any Governmental Authority for any alleged violation of such code of ethics.

(f)    Each Fund has duly adopted written policies and procedures required by Rule 38a-1 under the Investment Company Act. All such policies and procedures of each such Fund comply in all material respects with Applicable Law. There have been no material violations of any such policies and procedures, and neither the Seller nor either of the Funds has received written notice: (i) from any Governmental Authority or from any shareholders of such Fund asserting any material violation by the Seller or such Fund of such policies and procedures, or (ii) indicating that the Seller or such Fund is under any investigation by any Governmental Authority for any alleged violation of such policies and procedures.

(g)    The Books and Records of the Funds are complete and accurate in all material respects.

(h)    Schedule 2.8(h) sets forth all of the current investment advisory agreements and all material administrative services and other services agreements (collectively, the “Fund Agreements”), to which either of the Funds is a party and which are in effect on the date of this Agreement. True and correct copies of the Fund Agreements: (a) have been provided to the Purchaser prior to the date hereof,

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and (b) are in full force and effect. Each Fund Agreement was duly approved in accordance in all material respects with the applicable provisions of the Investment Company Act, to the extent required. Each Fund Agreement is valid and in full force and effect in accordance with its terms, and there is not and has not been, under any Fund Agreement, a material breach by any party thereto or event which, with the giving of notice or the lapse of time or both, would become such a material breach.

(i)    All Tax Returns of each of the Funds that are required to have been filed have been duly and timely filed, all such Tax Returns are true, correct and complete in all material respects, and all Taxes of or imposed on each of the Funds (whether or not shown on any Tax Return) have been duly and timely paid in full (or adequate provision for such has been made in the applicable Fund’s financial statements in accordance with GAAP). For all taxable years, or parts thereof, of each Fund ending on or prior to the Closing Date, such Fund has qualified as a regulated investment company as defined in Section 851 of the Code, has complied with all provisions of the Code relevant to its treatment, status and operation as a regulated investment company, and has made distributions sufficient to meet the requirements of Section 852(a) of the Code.

(j)    Each Fund has in full force and effect such fidelity bonds as may be required by the Investment Company Act. Schedule 2.8(j) sets forth all policies of insurance in effect with respect to the Funds or the Purchased Assets. Such insurance is maintained with reputable insurers and provides coverage sufficient in each case, in the reasonable business judgment of the Seller, for the operation of the business of the Funds.

(k)    All shares of each of the Funds have been duly authorized and are validly issued, fully paid and non-assessable. All shares of each of the Funds have been offered for sale or sold pursuant to: (a) an effective registration statement under the Securities Act, or a qualified exemption therefrom for the issuance of shares to the Seller or an Affiliate of the Seller prior to the commencement of operations of such Fund, and (b) an effective registration or qualification statement or a current notice of offering to sell or sale required under the securities laws of each jurisdiction in which such shares have been offered for sale or sold and during all such period or periods when such registration, qualification or notice has been required. No stop order suspending the effectiveness of any such registration or qualification statement or notice has been issued and, to the Seller’s knowledge, no proceedings for that purpose have been instituted.

(l)    Each of the Funds has timely filed all prospectuses, annual information forms, registration statements, proxy statements, financial statements, notices, other forms, reports, sales literature and advertising materials and any other documents required to be filed with any Governmental Authority, and any amendments thereto (the “Fund Reports”), and has timely paid all fees and interest required to be paid in connection therewith, except where the failure to file Fund Reports or timely pay all fees and interest has not been, and would not reasonably be expected to be, material to the business of the Fund. The Fund Reports: (a) have been prepared in all material respects in accordance with the requirements of Applicable Law, and (b) did not at the time they were filed, and with respect to any prospectus, proxy statement, sales literature or advertising material, did not during the period of its authorized use, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were or are made, not misleading.

(m)    The statements of net assets or assets and liabilities and schedule of investments included in the Fund Financial Statements present fairly in all material respects the financial position of each of the Funds as at the respective dates thereof, and the statements of operations and changes in net assets

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included in the Fund Financial Statements present fairly in all material respects the results of operations and cash flows of each of the Funds for the respective periods indicated, in each case in accordance with GAAP, except: (a) as may be stated in the footnotes to such financial statements, and (b) that the unaudited financial statements are subject to year-end adjustments in the ordinary course of business consistent with industry practice. The Funds have no liabilities, whether absolute, contingent or otherwise, that are not disclosed in the Fund Financial Statements or the footnotes to such financial statements, other than liabilities arising in the ordinary course of business since the date of such financial statements and that are not in excess of the expense ratios disclosed in the applicable Fund’s prospectus. Correct and complete copies of the Fund Financial Statements have been provided to the Purchaser. There have been no material deficiencies or weaknesses in the design or operation of internal controls over financial reporting or disclosure controls and procedures that have adversely affected or would reasonably be expected to adversely affect any Fund’s ability to record, process, summarize, and report financial information.

2.9    No Other Representations.  Except for the representations and warranties expressly set forth in this Section 2, the Seller makes no representation or warranty, express or implied, at law or in equity, in respect of the Seller or any of its assets, liabilities, or operations, including, without limitation, any implied representation or warranty as to the condition, merchantability, suitability, or fitness for a particular purpose, and expressly disclaims any such representation or warranty.

3    Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Seller as follows:

3.1    Company Status and Authority.   The Purchaser is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware and has the requisite power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery, and performance of this Agreement have been duly authorized by all necessary action of the Purchaser, including under its governing documents. This Agreement has been duly executed and delivered by the Purchaser and constitutes the valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as limited by laws affecting the enforcement of creditors’ rights generally or by general equitable principles.

3.2    No Conflicts; Consents and Approvals, etc.

(a)    Except as provided in Section 4.4 below, the execution, delivery and performance of this Agreement by the Purchaser will not result in: (i) any conflict with the certificate of formation, operating agreement or other governing documents of the Purchaser, (ii) any breach or violation of, or default under, Applicable Law or any mortgage, lease, agreement, deed of trust, indenture or any other instrument to which the Purchaser is a party or by which the Purchaser or any of its properties or assets are bound, or (iii) the creation or imposition of any lien, except for such breaches, violations or defaults, and such liens which would not, individually or in the aggregate, impair the ability of the Purchaser to fulfill its obligations hereunder.

(b)    Except as provided in Section 4.4 below, no consent, approval or authorization of, or filing with any third party or governmental authority is required on the part of the Purchaser in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

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3.3    Litigation.   There are no judicial or administrative actions, proceedings or investigations pending or, to the knowledge of the Purchaser, threatened, which question the validity, or would prevent or impair Purchaser’s performance, of this Agreement or any action taken or to be taken by the Purchaser in connection herewith.

3.4    Brokers.   All negotiations relating to this Agreement and the transactions contemplated hereby have been carried out without the intervention of any Person acting on behalf of the Purchaser in such manner as to give rise to any valid claim against the Purchaser or the Seller for any brokerage or finder’s commission, fee, or similar compensation.

3.5    Investment Advisory Matters.

(a)    The Purchaser has adopted a formal code of ethics, a written policy regarding insider trading and other policies and procedures required to be adopted under Rule 206(4)-7 under the Advisers Act and, with respect to such code of ethics, Rule 17j-1 under the Investment Company Act. Such code of ethics complies in all material respects with Rule 204A-1 under the Advisers Act and Rule 17j-1 under the Investment Company Act. There have been no material violations of such code of ethics, and the Purchaser has not received a written notice from any Governmental Authority (i) asserting any material violation of such codes of ethics or (ii) indicating that the Purchaser is under any investigation by any Governmental Authority for any alleged violation of such code of ethics. The policies and procedures of the Purchaser with respect to avoiding conflicts of interest, or the conflicts of interest that exist, as the case may be, are described in its most recent Form ADV (or incorporated by reference therein), as amended. As of the date of this Agreement, there have been no material violations of such policies.

(b)    None of the Purchaser or any other Person “associated” (as defined under the Advisers Act) with the Purchaser: (i) is ineligible under the Advisers Act to serve as a Person associated with a registered investment adviser, and (ii) has been convicted of any crime or is or has been subject to any disqualification that would be a basis for denial, suspension or revocation of registration of an investment adviser under Section 203(e) of the Advisers Act, and to the Purchaser’s knowledge, there is no basis for any such disqualification, denial, suspension or revocation.

(c)    None of the Purchaser or any of the directors, officers or employees of the Purchaser, is subject to any cease and desist, censure or other disciplinary or similar order issued by, or is a party to any written agreement, consent agreement, memorandum of understanding or disciplinary agreement with, or is a party to any commitment letter or similar undertaking to, or subject to any order or directive by, or a recipient of any supervisory letter from, any governmental authority that would impair the ability of Purchaser to carry out its obligations under this Agreement.

(d)    The Purchaser and each of its directors, officers and employees has complied in all material respects with, and has not been and is not now in violation in any material respect of, Applicable Law, except for violations, if any, that individually and in the aggregate, have not been, and would not reasonably be expected to be material to the business of the funds advised or sub-advised by the Purchaser. Neither the Purchaser nor any of its directors, officers or employees has received any written notice relating to any alleged violation of any Applicable Law from any Governmental Authority, or of any investigation with respect thereto, except for violations, if any, that, individually and in the aggregate, have not been, and would not reasonably be expected to be, material to the business of the funds advised or sub-advised by the Purchaser.

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(e)    The Purchaser is, and at all times since it has been required by the Advisers Act to be registered with the SEC has been, duly registered under the Advisers Act as an investment adviser with the SEC. The Purchaser is, and at all times since required by Applicable Law has been, duly registered, licensed, qualified or has made a notice of filing as an investment adviser in each jurisdiction where the conduct of its business requires such registration or notice filing. The information contained in the Purchaser’s most recent Form ADV was true and complete in all material respects at the time of filing and the Purchaser has made all amendments to such Form ADV as it is required to make under Applicable Laws except as has not been, and would not reasonably be expected to be, material to the business of the funds advised or sub-advised by the Purchaser.

3.6    Solvency.   Immediately after giving effect to the transactions contemplated by this Agreement, the Purchaser shall (a) be able to pay its debts as they become due; (b) own property which has a fair saleable value greater than the amounts required to pay its debts (including a reasonable estimate of the amount of all contingent liabilities); and (c) have adequate capital to carry on its business. No transfer of property is being made and no obligation is being incurred in connection with the transactions contemplated by this Agreement with the intent to hinder, delay, or defraud either present or future creditors of the Purchaser.

3.7    Anti-Corruption Laws. None of the Purchaser or, to the Purchaser’s knowledge, any employee of the Purchaser, has, in the past two years, violated or been convicted of violating the United States Foreign Corrupt Practices Act of 1977, as amended, and any other similar laws concerning or relating to bribery or corruption, other than any such violations would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Purchaser or the funds advised or sub-advised by the Purchaser.

4    Covenants.

4.1    Conduct of Business, etc.  From the date hereof until the Closing, except for entering into and performing its obligations under this Agreement and subject to Applicable Law, the Seller shall cause the business of each Fund to be conducted in the ordinary course in substantially the same manner in which it previously has been conducted.

4.2    Payment of Transaction-Related Expenses.  Each of Seller and Purchaser shall pay for any third party costs, fees, or expenses incurred by it in connection with the transactions contemplated hereby. In the case of Seller, such costs, fees, and expenses shall include without limitation: (i) all transfer, sales, use, and similar taxes arising out of the sale of the Purchased Assets pursuant to this Agreement; and (ii) all costs incurred in connection with seeking and obtaining shareholder approval of the transactions contemplated hereby, proxy solicitation costs, and printing and mailing expenses, regardless whether or not the transactions contemplated by this Agreement are consummated (collectively, the “Proxy Actions”). In the case of Purchaser, such costs, fees, and expenses shall include without limitation: (i) all costs, fees and expenses in connection with the formation, establishment, and registration of the Acquiring Funds; and (ii) all costs, fees and expenses related to the Reorganization, other than the costs related to the Proxy Actions. To the extent applicable, Seller shall reimburse Purchaser for any reasonable documented out-of-pocket expenses incurred by the Purchaser in connection with facilitating the Proxy Actions. In the event that there is any disagreement or lack of clarity as to whether a cost, expense, or fee is the Seller’s or Purchaser’s responsibility, the parties shall discuss and reach mutual agreement on the issue.

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4.3    Publicity.   No press release or public announcement related to this Agreement, or the transactions contemplated hereby, shall be issued or made without the joint approval of the Seller and the Purchaser; provided, however, that if required by law or the rules of any exchange on which the shares of the Purchaser’s ultimate parent company or the shares of the Seller or the Seller’s ultimate parent company are listed (in the reasonable opinion of counsel), such party may make such disclosures as may be required to comply with such law or rules, in which case the other party shall have the right to review such press release or announcement in advance.

4.4    Consummation of the Transaction.

(a)    Each of Seller and Purchaser shall use its commercially reasonable best efforts to: (i) bring about the satisfaction as soon as possible of all the conditions contained in Section 5, and (ii) perform and fulfill all conditions and obligations to be performed and fulfilled by it under this Agreement, to the end that the transactions contemplated by this Agreement shall be fully carried out. Without limiting the generality of the foregoing, the parties shall apply for and diligently prosecute all applications for, and shall use their commercially reasonable efforts promptly to obtain, such consents, authorizations, and approvals from such third parties and governmental authorities (including the Securities and Exchange Commission) as shall be necessary to permit the consummation of the transactions contemplated by this Agreement, including all action by Purchaser necessary for Purchaser to obtain any required authorizations to purchase the Purchased Assets and to operate and manage the Acquiring Funds. Specifically, in furtherance of the foregoing, each of the Seller and the Purchaser, as applicable, shall use their respective commercially reasonable efforts to:

i.obtain, as soon as reasonably practicable following the date of this Agreement, (A)(x) the approval of the Board of Trustees of each of the Funds (including the separate approval of a majority of the Independent Trustees) of the transfer of all of the assets of each Fund to the corresponding Acquiring Funds, in exchange for: (I) the assumption by the corresponding Acquiring Fund of all of the liabilities of the Fund, and (II) shares of the corresponding Acquiring Fund, pursuant to the terms of an Agreement and Plan of Reorganization in a form mutually agreeable to the Seller and the Purchaser (the “Reorganizations”), (y) the convening of a meeting of the shareholders of each Fund (the “Shareholder Meetings”) to be held as soon as reasonably practicable to vote upon the Reorganizations and such other matters as may properly come before the meeting (the “Shareholder Matters”), the preparation and filing of a proxy statement, the setting of a record date and taking other measures necessary for the Shareholder Meetings to be held as soon as reasonably practicable, and (z) such other matters as may be required (to the extent mutually agreed by the Seller and the Purchaser, such agreement to not be unreasonably withheld) to consummate the Reorganizations and the transactions contemplated by this Agreement (the “Additional Matters”), (B) the positive recommendation of the Board of Trustees of each of the Funds to shareholders of each Fund of the above-described matters (the approvals described in this paragraph (i), collectively, the “Required Fund Board Approvals”);

ii.subject to the Required Fund Board Approvals first being obtained, (A) cause the applicable Shareholder Meetings to be convened, (B) obtain the requisite proxies of shareholders in advance of the applicable Shareholder Meetings to approve the applicable Shareholder Matters, and (C) obtain the approval by shareholders of the applicable Fund of the applicable Shareholder Matters and, if any, the applicable Additional Matters to the

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extent requiring shareholder approval (the approvals of applicable Fund shareholders described in this clause (C), the “Required Shareholder Approvals”);

iii.obtain, as soon as reasonably practicable following the date of this Agreement, the approval of the Board of Trustees of each of the Acquiring Funds (including the separate approval of a majority of the Independent Trustees) of the Reorganizations, including the filing of a registration statement on Form N-14 to register shares of the Acquiring Funds to be issued in connection with the Reorganizations, and such other matters as may be required (to the extent mutually agreed by the Seller and the Purchaser, such agreement to not be unreasonably withheld) to consummate the Reorganizations and the transactions contemplated by this Agreement (the approvals described in this paragraphs (iii), together with the Required Fund Board Approvals and the Required Shareholder Approvals, the “Required Approvals”).

(b)    Purchaser and Seller each agree to use reasonable best efforts and to cooperate with the other party in all reasonable respects to prepare necessary proxy statements and all other shareholder communications to obtain all Required Shareholder Approvals to carry out the transactions contemplated by this Agreement. Seller and Purchaser agree that none of the information supplied or to be supplied by each of them for inclusion or incorporation by reference in such proxy statements will, at the date of mailing to the shareholders of the Funds, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

4.5    Intercompany Accounts. All monetary obligations of the Funds to the Seller or the Seller’s Affiliates shall be deemed due as of the Closing, and Purchaser shall cause such obligations to be paid promptly following Closing.

4.6    Accounts Receivable. Seller shall use its reasonable best efforts to collect all accounts or notes receivable due to the Seller from or in connection with the Funds at or prior to the Closing. In the event all such accounts or notes receivable are not collected prior to the Closing, the Purchaser shall pay any such amounts to Seller upon receipt thereof, and shall remain liable to the Seller, and shall indemnify the Seller, for the amounts due under this Section 4.6 until all such amounts are paid in full to the Seller.

5.    Conditions Precedent.

5.1    General.

  The respective obligations set forth herein of the Seller and the Purchaser to consummate the sale and purchase of the Purchased Assets at the Closing shall be subject to the fulfillment, on or before the Closing Date, in the case of the Seller, of the conditions set forth in Sections 5.2 and 5.3, and in the case of the Purchaser, of the conditions set forth in Sections 5.2 and 5.4.

5.2    Conditions to Obligations of Both Parties.

(a)    Receipt of Closing Deliveries. Each party shall have received all of the closing deliveries from the other party pursuant to Section 1.

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(b)    Fund Shareholder Approvals. All Required Approvals shall have been obtained in accordance with Applicable Law.

(c)    Reorganizations. Each of the Reorganizations shall be consummated simultaneously with the Closing.

(d)    No Injunction.   There shall not be in effect any injunction or other order issued by a court of competent jurisdiction restraining or prohibiting the consummation of the transactions contemplated by this Agreement.

5.3    Conditions to Obligations of the Seller.

(a)    Representations and Warranties of the Purchaser. The representations and warranties in Section 3 shall be true and correct when made and at and as of the Closing with the same effect as though made at and as of such time, with such exceptions as are not in the aggregate material. The Purchaser shall have duly performed and complied in all material respects with all agreements contained herein required to be performed or complied with by it at or before the Closing.

(b)    Separation Agreements. Each of the Key Employees listed on Schedule 5.4(b): (i) has executed a Separation Agreement with Seller before or simultaneously with the execution of this Agreement; and: (ii) shall be employed by the Seller until the Closing and shall not have given notice to the Seller (except as contemplated by the Closing) that he intends to terminate his employment with Seller.

(c)    Officer’s Certificate. The Purchaser shall have delivered to the Seller a certificate, dated the Closing Date and signed by an authorized officer thereof, as to the fulfillment of the conditions set forth in Section 5.3(a).

5.4    Conditions to Obligations of the Purchaser.

(a)    Representations and Warranties of the Seller.

The representations and warranties in Section 2 shall be true and correct when made and at and as of the Closing with the same effect as though made at and as of such time, with such exceptions as are not in the aggregate material. The Seller shall have duly performed and complied in all material respects with all agreements contained herein required to be performed or complied with by it at or before the Closing.

a.Employment Agreements. Each of the Key Employees listed on Schedule 5.4(b) that executed an Employment Agreement: (i) shall be employed by the Seller at the Closing and shall not have given notice to the Seller or Purchaser that he intends to terminate his employment with Seller (except as contemplated by the Closing) or with the Purchaser; and (ii) each such Employment Agreement shall be effective as of the Closing.

b.Closing Date Net Revenues. The amount of the Closing Date Net Revenues shall be 70% or more of the amount of the Base Date Net Revenues.

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c.Officer’s Certificate. The Seller shall have delivered to the Purchaser a certificate, dated the Closing Date and signed by an authorized officer thereof, as to the fulfillment of the conditions set forth in Section 5.4(a).

6    Covenants and Agreements.    

6.1    Non-Solicitation; Non-Competition.

(a)Each party agrees that, from the date of this Agreement until the Anniversary Date, neither it nor any of its directors, officers, managers, managing members, partners and employees, agents, advisors or subsidiaries (collectively, “Representatives”) will directly or indirectly, solicit for employment or employ or cause to leave the employ of the other party or any of its Affiliates any individual serving as an officer of the other party or any employee of the other party without obtaining the prior written consent of the other party (the “Restricted Persons”),which limitation shall not apply to any solicitation by the Purchaser or its Affiliates of current Seller employees John McClain, Jack Parker, and Bill Zox (each, a “Key Employee”). The foregoing shall not preclude either party from hiring or soliciting: (i) any person as a result of placing general solicitation advertisements (including, without limitation, any general recruitment efforts conducted by any recruitment agency), in each case not specifically targeted at hiring any Restricted Persons, (ii) any persons with whom a party has had contact regarding possible employment prior to the date of this Agreement , (ii) persons who are referred to either party by search firms, employment agencies or other similar entities provided that such entities have not been specifically instructed to solicit any Restricted Persons, (iv) persons who contact either party on his or her own accord with no solicitation or (v) persons who have not been employed by a party for a period of six months prior to the date such persons were first solicited for employment by the other party .

(b)Seller acknowledges that: (i) the Purchaser is acquiring certain confidential information pertaining to the Funds through the transactions contemplated by this Agreement (“Funds Confidential Information”) consisting of any and all: (A) nonpublic information concerning each of the Funds and each of their respective shareholders, including the identity of shareholders of the Funds; (B) information concerning the Funds, however documented, and (C) notes, analysis, compilations, studies, summaries, working papers or other materials prepared by or for Seller containing, based on, in whole or in part, or derived from any information included in clauses (A) or (B) above; (ii) the products and services comprising the Funds are, or may be, marketed throughout the United States; (iii) the Funds compete with other businesses that are or could be located in any part of the United States; (iv) Purchaser has required the covenants set forth in this Section 6.1 as a condition to Purchaser entering into this Agreement; (v) the covenants set forth in this Section 6.1 are reasonable and necessary to protect and preserve the Business; and (vi) Purchaser will be irreparably harmed and damaged if any of the covenants in this Section 6.1 are breached. Anything contained herein to the contrary notwithstanding, Seller shall retain equal rights in, and be permitted to continue to use, all Funds Confidential Information concerning clients of the Funds that are also clients of other funds, investment vehicles, or accounts managed by the Seller or its Affiliates.

(c)Seller agrees that, except as otherwise provided in this Section 6.1, from and after the Closing, Seller will not, and will not permit any of its Affiliates to, at any time, disclose to any unauthorized Person or use for its own account (except as required as part of maintaining business records) or for the benefit of any third party any Funds Confidential Information, whether it has such information in memory or embodied in a writing or other physical form, without Purchaser’s prior written consent, unless and to the extent that: (i) the Funds Confidential Information is or becomes generally known to the public other than as a result of a breach of the provisions of this Section 6.1 by Seller; (ii)

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the public disclosure thereof is required by a court of competent jurisdiction or otherwise by Applicable Law; (iii) the disclosure thereof is necessary in connection with the enforcement of this Agreement or (iv) the disclosure thereof is required by Applicable Law, regulation, subpoena, court order, inquiry or request from a court or an administrative or regulatory agency or self-regulatory organization having competent jurisdiction. If Seller becomes legally compelled to disclose any Funds Confidential Information, Seller shall: (A) provide Purchaser with prior written notice (to the extent not prohibited under Applicable Law) of the need for such disclosure and the required content of such disclosure; (B) if disclosure is required, furnish only that portion of the Funds Confidential Information which, upon the advice of counsel to the Seller, is legally required; and (C) reasonably cooperate with Purchaser, at Purchaser’s request and sole expense, to enable Purchaser to obtain reasonable assurances that confidential treatment will be accorded to the Funds Confidential Information. As requested by Purchaser, Seller agrees to deliver to Purchaser at any time at or following the Closing, a copy or an original of any or all Funds Confidential Information, whether in hardcopy, electronic, disk or other form, that may be in the Seller’s possession or control; provided, however, Seller may retain a copy of such Funds Confidential Information solely for the purposes of, and to the extent necessary in connection with, any audit, accounting matter, investigation, legitimate business recordkeeping, litigation or compliance or regulatory requirement applicable to Seller or any of its Affiliates. The obligations in this Section 6.1(c) shall survive the Closing indefinitely.

(d)For and in consideration of the payments to be received under this Agreement in connection with the Transactions, and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Seller agrees that, until: (i) two years from the Closing Date, if pursuant to the terms of Section 1.1 and 1.3, Purchaser is obligated to pay only the Initial Purchase Price, and (ii) two years from the Anniversary Date, if pursuant to the terms of Section 1.1 and 1.3 Purchaser is obligated to pay the Initial Purchase Price and any Additional Payments, it shall not, and shall not permit any of its subsidiaries to, directly or indirectly, whether for its own account or the account of another Person, invest in, own, manage, operate, finance or control or participate in the ownership, management, operation, financing or control of any entity that derived more than one-third (1/3) of its gross revenues for the most recently-completed fiscal year from mutual funds with a strategy and investment philosophy substantially similar to the strategy and investment philosophy of either fund as of the Closing, provided, however, that the forgoing limitation shall not apply to activities undertaken (i) by Seller in connection with their investment of client assets; (ii) by the Seller in connection with the conduct of its businesses as of the Closing Date, and (iii) for the avoidance of doubt, by Seller in the acquisition of or merger with another investment manager that derived less than one-third (1/3) of its gross revenues for the most recently-completed fiscal year from mutual funds with a strategy and investment philosophy substantially similar to the strategy and investment philosophy of either fund as of the Closing.

(e)From the date of this Agreement until the Closing, the Seller shall not (and shall cause its Affiliates and their respective officers, managers and employees not to): (1) take or fail to take any actions, (2) act in bad faith, with willful misconduct, or with gross negligence, or (3) otherwise manage the Funds in any manner with the intention, or the reasonably foreseeable result, of artificially inflating the Closing Date Net Revenues or otherwise circumvent the terms of the Closing Date Net Revenues as contemplated by this Agreement.

6.2     Certain Agreements of Purchaser Regarding the Acquiring Funds. From the date of the Closing until the Anniversary Date, the Purchaser shall (and shall cause its Affiliates and their respective officers, managers and employees to):

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(a) conduct the business of each Acquiring Fund in the ordinary course using the same degree of skill, care, and attention as it uses to manage its other open-end management company registered under the Investment Company Act;

(b) not act in bad faith, with willful misconduct, or with gross negligence, or otherwise manage the Acquiring Funds in any manner with the intention, or the reasonably foreseeable result, of reducing the amount of the Additional Payment(s) or otherwise circumventing the terms of the Additional Payment(s) contemplated by this Agreement; and

(c) not solicit any shareholder in the Acquiring Funds to move such shareholder’s investment from the Acquiring Funds into other funds, collective investment vehicles, or separately managed accounts owned, managed, or established by Purchaser or its affiliates in any manner with the intention, or the reasonably foreseeable result, of reducing the amount of the Additional Payment(s) or otherwise circumventing the terms of the Additional Payment(s) contemplated by this Agreement; and not terminate its advisory services or management of the Acquiring Funds (without making payment to the Seller pursuant to Section 1.3(f)).

6.3    Use of Sellers’ Marks. The Purchaser shall not use the trademarks, service marks, brand names or trade, corporate, or business names of the Seller or of any of its subsidiaries or affiliates in print or other advertising media or in any other manner; provided, however, that the Purchaser may refer to the Funds’ and each of the Key Employee’s past relationship with the Seller and all other information included in the Books and Records, including the marketing materials and historical track records of each of the Funds. The Seller also agrees that the Purchaser shall have permission to use any materials authored by the Key Employees while employed at the Seller (or its predecessors); provided that any future use will not make reference to the Seller or any affiliate of the Seller, except as permitted hereby.

    6.4    Purchaser AUM Statements. From the Closing Date through the Anniversary Date, Purchaser shall provide to Seller each month, within two (2) Business Days of the end thereof, a statement setting forth the AUM of each Acquiring Fund and the aggregate amount thereof.

    6.5 Non-Disparagement. From the date hereof until: (i) two years from the Closing Date, if pursuant to the terms of Section 1.1 and 1.3, Purchaser is obligated to pay only the Initial Purchase Price, and (ii) two years from the Anniversary Date, if pursuant to the terms of Section 1.1 and 1.3 Purchaser is obligated to pay the Initial Purchase Price and any Additional Payments,each of Purchaser and Seller agrees that it will not disparage or defame the other party, its Affiliates or any of their directors, officers, employees, services, products, or processes. This Section 6.5 shall not prohibit either party, its Affiliates, or any of such party’s or its Affiliates’ directors, officers, or employees, from: (i) communicating truthfully with any Governmental Authority, including without limitation, the U.S. Department of Justice, the U.S. Securities and Exchange Commission, NASDAQ, or the New York Stock Exchange; or (ii) responding truthfully to, cooperating with, testifying, assisting or participating in any governmental investigation, proceeding, hearing, subpoena, court order, inquiry, or request conducted, issued, or made by a Governmental Authority, including by providing documents or other information. Solely for purposes of this paragraph, Purchaser’s sole Affiliate shall be Franklin Resources, Inc.

7.     Indemnification.

7.1     Indemnification by the Seller. Subject to the limitations in this Section 7, Seller agrees to indemnify Purchaser, its Affiliates, their respective directors, officers, employees and agents and each of the successors and assigns of any of the foregoing (the “Purchaser Indemnified Parties”) against, and

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agrees to hold such Purchaser Indemnified Parties harmless from, all losses costs, damages, liabilities, claims, demands, judgments, fines, settlements, fees and expenses, whether governmental or non-governmental (including reasonable out-of-pocket expenses of investigation and reasonable out-of-pocket attorneys’ fees and expenses in connection with any claim, action, suit, arbitration or other proceeding, whether involving a third party claim or a claim between the parties) (collectively, “Losses”), incurred or resulting from: (i) any inaccuracy of any representation or warranty made by Seller in this Agreement or the Seller Officer’s Certificate, or (ii) any breach of any covenant or agreement on the part of Seller under this Agreement.

7.2    Indemnification by the Purchaser. Subject to the limitations in Sections 7.1(c) and (d), Purchaser agrees to indemnify Seller, its affiliates, their respective directors, officers, employees and agents and each of the successors and assigns of any of the foregoing (the “Seller Indemnified Parties”) against, and agrees to hold such Seller Indemnified Parties harmless from all Losses incurred or resulting from (i) any inaccuracy of any representation or warranty made by Purchaser in this Agreement or the Purchaser Officer’s Certificate or (ii) any breach of any covenant or agreement on the part of the Purchaser under this Agreement.

7.3    Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until the date that is eighteen (18) months from the Closing Date, other than: (i) the Fundamental Representations, which shall survive until the expiration of the applicable statutory period of limitations (including extensions thereof), or if there is no applicable statutory period of limitations, shall survive indefinitely; and (ii) the Tax Representations, which shall survive until six (6) months following the expiration of the applicable statutory period of limitations (including any extensions thereof). None of the covenants or other agreements contained in this Agreement shall survive the Closing Date other than those which by their terms contemplate performance after the Closing Date, and each such surviving covenant and agreement shall survive the Closing for the period contemplated by its terms. Notwithstanding the foregoing, any claims asserted in good faith with reasonably specificity (to the extent known at such time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of such survival period and such claims shall survive until finally resolved.

7.4    Certain Limits.

(a)    Each of Purchaser and Seller shall take, and cause its affiliates to take, all reasonable steps to mitigate any Loss upon becoming aware of any event or circumstance that would be reasonably expected to, or does, give rise thereto, including incurring costs only to the minimum extent necessary to remedy the breach that gives rise to such Loss.

(b)    Notwithstanding anything to the contrary contained in this Agreement (except to the extent such damages are actually paid, awarded or incurred in connection with a third party claim), no party shall be liable under this Section 7 for any punitive, exemplary, consequential, indirect or special damages, any lost profits or diminution of value, or similar damages or losses.

(c)    Payments pursuant to this Section 7 in respect of any Loss shall be limited to the amount of any liability or damage that remains after deducting therefrom any insurance proceeds and any indemnity, contribution or other similar payment actually received by a Purchaser Indemnified Party or Seller Indemnified Party, as applicable, in respect of any such claim, less any related costs and expenses, including the aggregate cost of pursuing any related insurance claims and any related increases in

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insurance premiums or other chargebacks (it being agreed that no party shall have any obligation to seek to recover any insurance proceeds in connection with making a claim under this Section 7 and that, promptly after the realization of any insurance proceeds, indemnity, contribution or other similar payment, the Seller Indemnified Party or Purchaser Indemnified Party, shall reimburse the Purchaser or Seller, as applicable, for such reduction in Losses for which the Seller Indemnified Party or Purchaser Indemnified Party, as applicable, was indemnified prior to the realization of reduction of such Losses).

(d)    Anything contained in this Agreement to the contrary notwithstanding, neither party hereto shall have any payment obligations to the other party hereto under this Section 7, other than for Fundamental Representations or Tax Representations unless and until the Losses for which such party is required to indemnify the other party exceeds $25,000 (the “Deductible”) and thereafter only to the extent such Losses exceed the Deductible.

(e)    Other than with respect to any indemnification claim for Losses arising from or resulting from willful misrepresentation, gross negligence or fraud under the laws of the State of Delaware, or in respect of any failure of the Fundamental Representations and the Tax Representations to be true and correct, the maximum aggregate liability of the Seller for all indemnification obligations under this Agreement for Losses shall be the Initial Purchase Price, and the maximum aggregate liability of the Purchaser for all indemnification obligations under this Agreement for Losses shall be the Initial Purchase Price.

For the avoidance of doubt, for any Loss or Losses for which the Seller has liability pursuant to Section 7.1, the Purchaser shall be entitled to reduce the Additional Payments (such reduction in Additional Payments, a “Liability Retention Amount”), by: (i) if the Purchaser is reasonably able, in its discretion, to estimate the amount of such Loss or Losses at the time of an indemnification claim, an amount equal to the lesser of (A) fifty percent (50%) of the Purchaser’s estimate of the amount of such Loss or Losses and (B) fifty percent (50%) of the Additional Payments amount, and (ii) if the amount of such Loss or Losses is not known by the Purchaser at the time of such indemnification claim, an amount equal to fifty percent (50%) of the Additional Payments amount. In addition, once the amount of any such Loss or Losses has been determined for an indemnification event, the amount of any Liability Retention Amount in excess of the determined amount of such Loss or Losses shall be payable pursuant to the Section 1.3, or, if the procedures set forth in Section 1.3 have been completed, promptly paid to Seller.

(f)    The parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims for Losses (other than claims arising from Fraud) shall be pursuant to the indemnification provisions set forth in this Section 7.

7.5    Procedure.

(a)    The Purchaser, on the one hand, and Seller, on the other hand, each agrees to notify promptly each other if either of them becomes aware of any Losses with respect to which indemnity may be asserted under this Section 7 (hereinafter referred to for purposes of this Section 7(d) as a “claim”), provided, however, that failure to notify the indemnifying party shall not relieve such party from liability except to the extent such party is materially prejudiced thereby.

(b)    The party entitled to indemnity (the “Indemnitee”) shall permit the party responsible for such indemnity (the “Indemnitor”) to assume, by giving written notice to the Indemnitee within forty-five (45) calendar days after receipt of notice of such claim, the defense of any third-party

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claim or any litigation resulting from such third-party claim at its own cost and, at its own expense, to employ counsel reasonably acceptable to the Indemnitee; provided, however, that if the Indemnitor is Seller, such Indemnitor shall not have the right to assume, defend or direct the defense of any such claim or demand that (x) seeks an injunction or other equitable relief against the Indemnitee, (y) relates to or arises in connection with any criminal proceeding, action, indictment, allegation or investigation against the Indemnitee, or (z) the Indemnitor and the Indemnitee are both named parties to the proceedings and the Indemnitee shall have concluded in good faith that there is a conflict of interest between the Indemnitor and the Indemnitee. If the Indemnitor assumes the defense of any such claim or Litigation resulting therefrom, the Indemnitee may participate, at its expense, in the defense of such claim or Litigation; provided, however, that the Indemnitor shall direct and control the defense of such claim or Litigation to the extent related to its indemnification obligation; and provided, further, however, that, if the Indemnitor proposes that the same counsel represent both the Indemnitee and the Indemnitor and representation of both parties by the same counsel is subject to a conflict of interest in the reasonable conclusion of the Indemnitee upon the advice of legal counsel, then the Indemnitee shall have the right to retain its own counsel at the cost and expense of the Indemnitor. The Indemnitor shall not consent to any settlement or to the entry of any judgment which does not include a complete release of the Indemnitee, from all liability with respect thereto or which imposes any liability or obligation on the Indemnitee, other than an obligation to pay money which will be satisfied by the Indemnitor, without the written consent of the Indemnitee, which shall not be unreasonably withheld, conditioned or delayed. The Indemnitee shall make available to the Indemnitor all records and other materials in the possession or under the control of the Indemnitee and required by the Indemnitor in defending any such claim, and shall in all respects give reasonable cooperation in such defense.

(c)    If the Indemnitor does not assume the defense of any such third-party claim or Litigation resulting therefrom, by giving written notice to the Indemnitee within forty-five (45) calendar days of receipt of notice of such claim, the Indemnitee may defend against such claim or Litigation in a reasonable and customary manner. The Indemnitee shall not consent to entry of any judgment or enter into any settlement of such claim or Litigation without the written consent of the Indemnitor, which consent shall not be unreasonably withheld, conditioned or delayed. The Indemnitor shall promptly reimburse the Indemnitee from time to time for any and all amounts reasonably paid for or incurred by the Indemnitee and for which the Indemnitor is obligated pursuant to this Section 7, upon submission by the Indemnitee of a statement reflecting the basis upon which such amounts are sought and the computation of such amounts.

(d)    Tax Treatment of Indemnification Payments. The parties agree that any payment made under this Section 7 shall be treated by such parties as an adjustment to the Purchase Price.

8    Termination. This Agreement may be terminated at any time prior to the Closing as follows:

(a)    by mutual written consent of the Purchaser and the Seller;

(b)    upon the issuance by any governmental authority of an order, decree or ruling or their taking of any other action restraining, enjoining or otherwise prohibiting the transactions contemplated hereby, which order, decree, ruling or any other action shall have become final and nonappealable;

(c)    by either the Purchaser or Seller if the Closing has not have occurred on or before the later of September 30, 2021, or such later date as may have been agreed upon in writing by the parties

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hereto; provided, however, that no termination may be made under this Section 7.1(c) if the failure to close was caused by the action or inaction of the terminating party;

(d)    by the Purchaser upon a breach of any covenant or agreement on the part of the Seller set forth in this Agreement, or if any representation or warranty of the Seller shall have become untrue, in either case such that the condition set forth in Section 5.4(a) could not be satisfied; provided, however, that, if such breach is curable by Seller, for so long as the Seller continues to exercise such commercially reasonable efforts, the Purchaser may not terminate this Agreement under this Section 7.1(d); or

(e)    by Seller upon a breach of any covenant or agreement on the part of the Purchaser set forth in this Agreement, or if any representation or warranty of the Purchaser shall have become untrue, in either case such that the condition set forth in Section 5.3(a) hereof would not be satisfied; provided, however, that, if such breach is curable by the Purchaser, for so long as the Purchaser continues to exercise such reasonable commercially efforts, the Seller may not terminate this Agreement under this Section 7.1(e).

9    General Provisions.

9.1    Modification; Waiver.

  This Agreement may be modified only by a written instrument executed by the parties hereto. Any of the terms and conditions of this Agreement may be waived in writing at any time on or prior to the Closing Date by the party entitled to the benefits thereof.

9.2    Entire Agreement.  This Agreement, including the schedules and exhibits hereto (which are hereby incorporated by reference and made a part hereof) is the entire agreement of the parties with respect to the subject matter hereof and supersedes all other prior agreements, understandings, documents, projections, financial data, statements, representations and warranties, oral or written, express or implied, between the parties hereto and their respective affiliates, representatives, and agents in respect of the subject matter hereof.

9.3    Certain Limitations; Purchaser Acknowledgement. It is the explicit intent and understanding of each of the parties hereto that neither party nor any of its affiliates, representatives or agents is making any representation or warranty whatsoever, oral or written, express or implied, other than those set forth in Section 2 and Section 3 and neither party is relying on any statement, representation or warranty, oral or written, express or implied, made by the other party or such other party’s affiliates, representatives, or agents, except for the representations and warranties set forth in such sections. The parties agree that this is an arm’s length transaction in which the parties’ undertakings and obligations are limited to the performance of their obligations under this Agreement. The Purchaser acknowledges that it is a sophisticated investor, that it has undertaken a full investigation of the Purchased Assets, and that it has only a contractual relationship with the Seller based solely on the terms of this Agreement, and that there is no special relationship of trust or reliance between the Purchaser and the Seller.

9.4    Expenses. Except as expressly provided in Section 4.2, whether or not the transactions contemplated herein shall be consummated, each of the Purchaser and the Seller shall pay its own expenses incident to the preparation and performance of this Agreement.

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9.5    Further Actions. Each party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or implement the transactions contemplated hereby.

9.6    Post-Closing Access.

(a)In connection with any matter relating to any period prior to, or any period ending on, the Closing, the Purchaser shall, upon the request and at the expense of the Seller, permit the Seller and its representatives full access at all reasonable times to the books and records of the Seller, and the Purchaser shall execute such documents as the Seller may reasonably request to enable the Seller to file any required reports or tax returns. The Purchaser shall not dispose of such books and records during the seven-year period beginning with the Closing Date without the Seller’s consent, which consent shall not be unreasonably withheld. Following the expiration of such seven-year period, the Purchaser may dispose of such books and records at any time upon giving sixty (60) days’ prior written notice to the Seller, unless the Seller agrees to take possession of such books and records within sixty (60) days at no expense to the Purchaser.

(b)The Seller shall, upon the request of the Purchaser, provide the Purchaser and its representatives with full access to any Books and Records relating to the Purchased Assets in the possession of the Seller. The Seller shall not dispose of such Books and Records during the seven-year period beginning with the Closing Date without the Purchaser’s consent, which consent shall not be unreasonably withheld. Following the expiration of such seven-year period, the Seller may dispose of such Books and Records at any time upon giving sixty (60) days’ prior written notice to the Purchaser, unless the Purchaser has already taken possession of all such Books and Records or agrees to take possession before the expiration of the sixty (60) day notice period.

9.7    Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given or made as follows: (a) if sent by reputable overnight air courier (such as UPS, DHL or Federal Express), two (2) Business Days after mailing; (b) if sent by facsimile or email transmission, with a copy mailed on the same day in the manner provided in (a) above, when transmitted; or (c) if otherwise actually personally delivered, when delivered. All such notices, requests, demands, and other communications and shall be delivered as follows:

if to the Seller:

Diamond Hill Capital Management, Inc.

325 John H. McConnell Boulevard, Suite 200

Columbus, OH 43215-2232

With a copy to:

Vorys, Sater, Seymour and Pease LLP

301 East Fourth Street

Suite 3500, Great American Tower

Cincinnati, OH 45202

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if to the Purchaser:

Brandywine Global Investment Management LLC

1735 Market Street, Suite 1800

Philadelphia, PA 19103

with a copy to:

Franklin Resources, Inc.

One Franklin Parkway

San Mateo, CA 94403

or to such other address or to such other Person as either party hereto shall have last designated by notice to the other party.

9.8    Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that any assignment, by operation of Applicable Law or otherwise, by either party hereto shall require the prior written consent of the other party and any purported assignment or other transfer without such consent shall be void and unenforceable.

9.9    No Third Party Beneficiaries. Nothing in this Agreement shall confer any rights upon any Person which is not a party or a successor or permitted assignee of a party to this Agreement, except that the Acquiring Funds shall be deemed third party beneficiaries of the representations and warranties of the Seller set forth in Section 2.

9.10    Counterparts. This Agreement and any document or instrument delivered in connection herewith may be executed in counterparts, both of which shall constitute one and the same instrument. Signed counterparts of this Agreement and any document or instrument delivered in connection herewith may be delivered by facsimile, by scanned .pdf image, or by electronic signature, and via email delivery, all of which shall be deemed to be original signatures.

9.11    Interpretation. The section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof.

9.12    Governing Law. This Agreement shall be construed, performed and enforced in accordance with the laws of the State of Delaware, without regard to the conflicts of law principles of such state.

9.13    Consent to Jurisdiction, etc.

(a)    Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the jurisdiction of any State court or Federal court of the United States of America sitting in New York, New York, and any appellate court of any court thereof, in any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby, or for recognition or enforcement of any judgment relating thereto, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be

26

heard and determined in such New York State court or, to the extent permitted by Applicable Law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Applicable Law.

(b)    Each of the parties hereto hereby irrevocably and unconditionally waives, to the fullest extent to which it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in any State or Federal court located in New York, New York. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Applicable Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(c)    Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.7. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by Applicable Law.

9.14    Waiver of Punitive and Other Damages and Jury Trial.

(a)    The parties to this Agreement expressly waive and forego any right to recover punitive, exemplary, consequential, indirect or special damages, any lost profits or diminution of value, or similar damages or losses in any arbitration, lawsuit, litigation, or proceeding arising out of or resulting from any controversy or claim arising out of or relating to this Agreement or the transactions contemplated hereby.

(b)    Each party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues, and therefore it hereby irrevocably and unconditionally waives any right it may have to trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated hereby.

(c)    Each party certifies and acknowledges that (i) no representative, agent, or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce either of the foregoing waivers, (ii) it understands and has considered the implications of such waivers, (iii) it makes such waivers voluntarily, and (iv) it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 9.14.

[Remainder of page intentionally left blank; signature page follows.]

27

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

BRANDYWINE GLOBAL INVESTMENT MANAGEMENT, LLC

By:    /s/ Adam B. Spector

Name:    Adam B. Spector

Title:     Managing Partner

DIAMOND HILL CAPITAL MANAGEMENT, INC.

By:    /s/ Thomas E. Line

Name:    Thomas E. Line

Title:    Chief Financial Officer

28

EX-31.1

CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-Q

I, Heather E. Brilliant, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Diamond Hill Investment Group, 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(s) 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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(s) 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 (or persons performing the equivalent functions):

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.

Date: April 26, 2021	/s/ Heather E. Brilliant
	Heather E. Brilliant
	Chief Executive Officer

EX-31.2

CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-Q

I, Thomas E. Line, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Diamond Hill Investment Group, 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(s) 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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(s) 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 (or persons performing the equivalent functions):

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.

Date: April 26, 2021	/s/ Thomas E. Line
	Thomas E. Line
	Chief Financial Officer

EX-32.1

CERTIFICATION PURSUANT TO

TITLE 18, UNITED STATES CODE, SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Diamond Hill Investment Group, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Heather E. Brilliant, Chief Executive Officer of the Company, and Thomas E. Line, Chief Financial Officer of the Company, certify, pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 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.

/s/ Heather E. Brilliant

Print Name: Heather E. Brilliant

Title: Chief Executive Officer

Date: April 26, 2021

/s/ Thomas E. Line

Print Name: Thomas E. Line

Title: Chief Financial Officer

Date: April 26, 2021

XML

Cover Page - shares	3 Months Ended
	Mar. 31, 2021	Apr. 26, 2021
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2021
Document Transition Report	false
Entity File Number	000-24498
Entity Registrant Name	DIAMOND HILL INVESTMENT GROUP, INC
Entity Incorporation, State or Country Code	OH
Entity Tax Identification Number	65-0190407
Entity Address, Address Line One	325 John H. McConnell Blvd., Suite 200
Entity Address, City or Town	Columbus
Entity Address, State or Province	OH
Entity Address, Postal Zip Code	43215
City Area Code	614
Local Phone Number	255-3333
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Title of 12(b) Security	Common Stock, no par value
Trading Symbol	DHIL
Security Exchange Name	NASDAQ
Entity Common Stock, Shares Outstanding		3,193,930
Amendment Flag	false
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Entity Central Index Key	0000909108
Current Fiscal Year End Date	--12-31

XML

Commitments and Contingencies

3 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

The Company indemnifies its directors, officers, and certain employees for certain liabilities that may arise from performance of their duties to the Company. From time to time, the Company is involved in legal matters relating to claims arising in the ordinary course of business. There are currently no such matters pending that the Company believes could have a material adverse effect on its consolidated financial statements.

Additionally, in the normal course of business, the Company enters into agreements that contain a variety of representations and warranties and that provide general indemnification obligations. Certain agreements do not contain any limits on the Company’s liability and could involve future claims that may be made against the Company that have not yet occurred. Therefore, it is not possible to estimate the Company’s potential liability under these indemnities. Further, the Company maintains insurance policies that may provide coverage against certain of these liabilities.

XML

Consolidated Balance Sheets - USD ($)	Mar. 31, 2021	Dec. 31, 2020	Mar. 31, 2020
ASSETS
Cash and cash equivalents	$ 80,187,685	$ 98,478,202
Investments	142,695,192	128,401,136
Accounts receivable	19,717,837	17,805,864
Prepaid expenses	2,810,871	2,977,759
Income taxes receivable	0	256,538
Property and equipment, net of accumulated depreciation	6,820,446	6,740,396
Deferred taxes	7,433,362	8,437,446
Total assets	259,665,393	263,097,341
Liabilities
Accounts payable and accrued expenses	9,306,239	8,002,303
Accrued incentive compensation	8,236,156	28,400,000
Income taxes payable	3,647,687		$ 0
Deferred compensation	33,369,087	33,241,952
Total liabilities	54,559,169	69,644,255
Redeemable noncontrolling interest	10,665,146	9,372,333
Permanent Shareholders’ equity
Common stock, no par value: 7,000,000 shares authorized; 3,197,634 issued and outstanding at March 31, 2021 (inclusive of 215,352 unvested shares); 3,168,823 issued and outstanding at December 31, 2020 (inclusive of 183,718 unvested shares)	85,303,452	80,810,946
Preferred stock, undesignated, 1,000,000 shares authorized and unissued	0	0
Deferred equity compensation	(19,440,920)	(14,748,118)
Retained earnings	128,578,546	118,017,925
Total permanent shareholders’ equity	194,441,078	184,080,753	$ 190,779,920
Total liabilities and shareholders’ equity	$ 259,665,393	$ 263,097,341
Book value per share (usd per share)	$ 60.81	$ 58.09

XML

Consolidated Balance Sheets (Parenthetical) - shares	Mar. 31, 2021	Dec. 31, 2020
Statement of Financial Position [Abstract]
Common stock, shares authorized	7,000,000	7,000,000
Common stock, shares issued	3,197,634	3,168,823
Common stock, shares outstanding	3,197,634	3,168,823
Preferred stock, shares authorized	1,000,000	1,000,000
Unvested shares	215,352	183,718

XML

Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interest (unaudited) - USD ($)	Total	Common Stock	Deferred Equity Compensation	Retained Earnings
Beginning balance (shares) at Dec. 31, 2019		3,294,672
Beginning Balance at Dec. 31, 2019	$ 192,855,681	$ 95,853,477	$ (20,331,890)	$ 117,334,094
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of restricted stock grants (shares)		3,850
Issuance of restricted stock grants		$ 347,424	(347,424)
Amortization of restricted stock grants	1,786,217		1,786,217
Issuance of stock grants (in shares)		23,640
Issuance of stock grants	3,396,359	$ 3,396,359
Issuance of common stock related to 401k plan match (in shares)		5,316
Issuance of common stock related to 401k plan match	647,100	$ 647,100
Shares withheld related to employee tax withholding (in shares)		(1,801)
Shares withheld related to employee tax withholding	(252,968)	$ (252,968)
Forfeiture of restricted stock grants (shares)		(1,225)
Forfeiture of restricted stock grants		$ (206,347)	206,347
Repurchase of common stock (shares)		(76,937)
Repurchase of common stock	(9,182,577)	$ (9,182,577)
Net income	1,530,108			1,530,108
Ending balance (shares) at Mar. 31, 2020		3,247,515
Ending Balance at Mar. 31, 2020	190,779,920	$ 90,602,468	(18,686,750)	118,864,202
Beginning balance attributable to redeemable noncontrolling Interests at Dec. 31, 2019	14,178,824
Increase (Decrease) in Temporary Equity [Roll Forward]
Net Income Attributable to Redeemable Noncontrolling Interest	4,058,476
Net subscriptions of consolidated funds	(565,998)
Ending balance attributable to redeemable noncontrolling Interests at Mar. 31, 2020	$ 9,554,350
Beginning balance (shares) at Dec. 31, 2020	3,168,823	3,168,823
Beginning Balance at Dec. 31, 2020	$ 184,080,753	$ 80,810,946	(14,748,118)	118,017,925
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of restricted stock grants (shares)		52,434
Issuance of restricted stock grants		$ 8,160,714	(8,160,714)
Amortization of restricted stock grants	1,397,132		1,397,132
Issuance of stock grants (in shares)		3,681
Issuance of stock grants	529,806	$ 529,806
Issuance of common stock related to 401k plan match (in shares)		154
Issuance of common stock related to 401k plan match	24,000	$ 24,000
Shares withheld related to employee tax withholding (in shares)		(1,729)
Shares withheld related to employee tax withholding	(258,088)	$ (258,088)
Forfeiture of restricted stock grants (shares)		(13,200)
Forfeiture of restricted stock grants		$ (2,070,780)	2,070,780
Repurchase of common stock (shares)		(12,529)
Repurchase of common stock	(1,893,146)	$ (1,893,146)
Cash dividend paid of $1.00 per share	(3,147,890)			(3,147,890)
Net income	$ 13,708,511			13,708,511
Ending balance (shares) at Mar. 31, 2021	3,197,634	3,197,634
Ending Balance at Mar. 31, 2021	$ 194,441,078	$ 85,303,452	$ (19,440,920)	$ 128,578,546
Beginning balance attributable to redeemable noncontrolling Interests at Dec. 31, 2020	9,372,333
Increase (Decrease) in Temporary Equity [Roll Forward]
Net Income Attributable to Redeemable Noncontrolling Interest	(554,102)
Net subscriptions of consolidated funds	738,711
Ending balance attributable to redeemable noncontrolling Interests at Mar. 31, 2021	$ 10,665,146

XML

Consolidated Statements of Cash Flows (unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$ 14,262,613	$ (2,528,368)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	218,731	265,084
Share-based compensation	1,481,578	2,433,317
Decrease (increase) in accounts receivable	(1,911,973)	3,873,142
Change in current income taxes	3,904,225	3,297,343
Change in deferred income taxes	1,004,084	(2,691,713)
Net (gains) losses on investments	(5,205,321)	23,246,116
Net change in securities held by Consolidated Funds	(11,456,604)	(589,071)
Decrease in accrued incentive compensation	(19,634,038)	(15,799,928)
Increase (decrease) in deferred compensation	127,135	(7,475,032)
Other changes in assets and liabilities	1,549,065	(2,039,894)
Net cash (used in) provided by operating activities	(15,660,505)	1,990,996
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(413,441)	(115,218)
Purchase of Company sponsored investments	(1,890,082)	(10,948,903)
Proceeds from sale of Company sponsored investments	3,891,396	23,209,972
Net cash provided by investing activities	1,587,873	12,145,851
CASH FLOWS FROM FINANCING ACTIVITIES:
Value of shares withheld related to employee tax withholding	(258,088)	(252,968)
Payment of dividends	(3,147,890)	0
Net subscriptions (redemptions) received from redeemable noncontrolling interest holders	738,711	(565,998)
Repurchase of common stock	(1,893,146)	(9,182,577)
Proceeds received under employee stock purchase plan	342,528	0
Net cash used in financing activities	(4,217,885)	(10,001,543)
CASH AND CASH EQUIVALENTS
Net change during the period	(18,290,517)	4,135,304
At beginning of period	98,478,202	93,176,253
At end of period	80,187,685	97,311,557
Supplemental cash flow information:
Income taxes paid	24,653	0
Supplemental disclosure of non-cash transactions:
Common stock issued as incentive compensation	529,806	3,396,359
Charitable donation of corporate investments	$ 366,555	$ 0

XML

Consolidated Statements of Income (unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
REVENUES:
Revenue	$ 39,014,433	$ 31,925,745
OPERATING EXPENSES:
Compensation and related costs, excluding deferred compensation expense (benefit)	16,814,941	15,417,176
Deferred compensation expense (benefit)	3,102,946	(8,155,881)
General and administrative	2,815,678	1,928,656
Sales and marketing	1,868,026	1,455,682
Mutual fund administration	880,721	814,953
Total operating expenses	25,482,312	11,460,586
NET OPERATING INCOME	13,532,121	20,465,159
Investment income (loss), net	5,663,454	(22,398,092)
NET INCOME (LOSS) BEFORE TAXES	19,195,575	(1,932,933)
Income tax expense	4,932,962	595,435
NET INCOME (LOSS)	14,262,613	(2,528,368)
Net loss (income) attributable to redeemable noncontrolling interest	554,102	(4,058,476)
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$ 13,708,511	$ 1,530,108
Earnings per share attributable to common shareholders
Basic (USD per share)	$ 4.34	$ 0.47
Diluted (USD per share)	$ 4.34	$ 0.47
Weighted average shares outstanding
Basic (in shares)	3,156,768	3,272,761
Diluted (in shares)	3,156,768	3,272,761
Investment advisory
REVENUES:
Revenue	$ 36,569,103	$ 30,157,680
Mutual fund administration revenue, net
REVENUES:
Revenue	$ 2,445,330	$ 1,768,065

XML

Business and Organization	3 Months Ended
	Mar. 31, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Business and Organization	Business and OrganizationDiamond Hill Investment Group, Inc. (the "Company"), an Ohio corporation, derives consolidated revenue and net income from investment advisory and fund administration services. Diamond Hill Capital Management, Inc. ("DHCM"), an Ohio corporation, is a wholly owned subsidiary of the Company and a registered investment adviser. DHCM is the investment adviser and administrator for the Diamond Hill Funds (the "Funds"), a series of open-end mutual funds. The Company also provides investment advisory services to separately managed accounts and provides sub-advisory services to other mutual funds.

XML

Significant Accounting Policies

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

Significant Accounting Policies

Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, condensed, consolidated financial statements as of March 31, 2021 and December 31, 2020, and for the three-month periods ended March 31, 2021 and March 31, 2020, for Diamond Hill Investment Group, Inc. and its subsidiaries (referred to in these notes to the condensed consolidated financial statements as "the Company," "management," "we," "us," and "our"), have been prepared in accordance with United States generally accepted accounting principles ("GAAP"), with the instructions to Form 10-Q, and with Article 10 of Securities and Exchange Commission (the "SEC") Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair statement of the financial condition and results of operations as of the dates, and for the interim periods, presented have been included. These unaudited, condensed, consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements of the Company included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the "2020 Form 10-K"), as filed with the SEC.

Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the results the Company may expect for the full fiscal year ending December 31, 2021 (“fiscal 2021”).

For further information regarding the risks to the Company's business, refer to the consolidated financial statements and notes thereto included in the 2020 Form 10-K and in “Part II – Item 1A. – Risk Factors” of this Quarterly Report on Form 10-Q.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions related to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expense during the period. Actual results could differ from those estimates.

Reclassification

Certain prior period amounts and disclosures may have been reclassified to conform to the current period's financial presentation.

Principles of Consolidation

The accompanying consolidated financial statements include the operations of the Company and its controlled subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.

The Company holds certain investments in the Funds for general corporate investment purposes, to provide seed capital for newly formed strategies, or to add capital to existing strategies. The Funds are organized in a series fund structure in which there are multiple mutual funds within one trust (the "Trust"). The Trust is an open-end investment company registered under the Investment Company Act of 1940, as amended (the"1940 Act").

The Company performs its consolidation analysis at the individual Fund level and has concluded that the Funds are voting rights entities ("VREs") because the structure of the Funds is such that the shareholders are deemed to have the power through voting rights to direct the activities that most significantly impact each Fund's economic performance. To the extent material,

these Funds are consolidated if Company ownership, directly or indirectly, represents a majority interest (greater than 50%). The Company records redeemable noncontrolling interests in consolidated investments for which the Company's ownership is less than 100%. The Company has consolidated the Diamond Hill Large Cap Concentrated Fund, the Diamond Hill International Fund, and the Diamond Hill Global Fund (collectively, the "Consolidated Funds") as of March 31, 2021.

Redeemable Noncontrolling Interest

Redeemable noncontrolling interest represents third-party interests in the Consolidated Funds. This interest is redeemable at the option of the investors, and therefore, is not treated as permanent equity. Redeemable noncontrolling interest is recorded at redemption value, which approximates the fair value each reporting period.

Segment Information

Management has determined that the Company operates in one business segment, which is providing investment management and administration services to mutual funds and separately managed accounts. Therefore, the Company does not present disclosures relating to operating segments in annual or interim financial statements.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and money market mutual funds held by DHCM.

Accounts Receivable

The Company records accounts receivable when they are due and presents them on the balance sheet net of any allowance for doubtful accounts. Accounts receivable are written off when they are determined to be uncollectible. Any allowance for doubtful accounts is estimated based on the Company’s historical losses, existing conditions in the industry, and the financial stability of the individual or entity that owes the receivable. No allowance for doubtful accounts was deemed necessary at either March 31, 2021, or December 31, 2020. Accounts receivable from the Funds were $12.3 million as of March 31, 2021, and $10.5 million as of December 31, 2020.

Investments

Management determines the appropriate classification of its investments at the time of purchase and re-evaluates its determination for each reporting period.

Investments in the Funds that DHCM advises, where the Company has neither control nor the ability to exercise significant influence, as well as securities held in the Consolidated Funds are measured at fair value based on quoted market prices. Unrealized gains and losses are recorded as investment income (loss) in the Company's consolidated statements of income.

Investments classified as equity method investments represent investments in which the Company owns between 20-50% of the outstanding voting interests in the entity or when it is determined that the Company is able to exercise significant influence but not control over the investments. When using the equity method, the Company recognizes its respective share of the investee's net income or loss for the period, which is recorded as investment income in the Company's consolidated statements of income.

As of March 31, 2021, the Company did not have any investments classified as equity method investments.

Property and Equipment

Property and equipment, consisting of leasehold improvements, right-of use lease assets, computer equipment, capitalized software, furniture, and fixtures are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated lives of the assets.

Revenue Recognition – General

The Company recognizes revenue when it satisfies performance obligations under the terms of a contract with a client. The Company earns substantially all of its revenue from investment advisory and fund administration contracts. Investment advisory and administration fees, generally calculated as a percentage of assets under management ("AUM"), are recorded as revenue as services are performed. In addition to fixed fees based on a percentage of AUM, certain client accounts also provide periodic performance-based fees.

Revenue earned during the three months ended March 31, 2021 and 2020 under contracts with clients include:

	Three Months Ended March 31, 2021
	Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	$	26,510,701	$	2,445,330	$	28,956,031
Sub-advised funds and separately managed accounts	10,058,402		—		10,058,402
	$	36,569,103	$	2,445,330	$	39,014,433

	Three Months Ended March 31, 2020
	Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	$	23,454,563	$	1,768,065	$	25,222,628
Sub-advised funds and separately managed accounts	6,703,117		—		6,703,117
	$	30,157,680	$	1,768,065	$	31,925,745

Revenue Recognition – Investment Advisory Fees

The Company's investment advisory contracts with clients have a single performance obligation because the contracted services are not separately identifiable from other obligations in the contracts and, therefore, are not distinct. All performance obligations to provide advisory services are satisfied over time and the Company recognizes revenue as time passes.

The fees the Company receives for its services under its investment advisory contracts are based on AUM, which changes based on the value of securities held under each advisory contract. These fees are thereby constrained and represent variable consideration, and they are excluded from revenue until the AUM on which the Company's client is billed is no longer subject to market fluctuations.

The Company also provides services to model delivery programs in which the Company provides its strategy model portfolio to

the sponsor of the model delivery. The Company is paid a portion of the model delivery fee for its services by the program

sponsor at a pre-determined rate based on assets in the program. Model delivery program revenues were $0.9 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively. Model delivery program revenue is included in investment advisory fees in the consolidated statements of income.

Revenue Recognition – Performance-Based Fees

The Company manages certain client accounts that provide for performance-based fees. These fees are calculated based on client investment results over rolling five-year periods. The Company records performance-based fees when it is probable that a significant reversal of the revenue will not occur. The Company did not record any performance-based fees during either of the three-month periods ended March 31, 2021 and 2020. The table below shows AUM subject to performance-based fees and the amount of performance-based fees that would be recognized based upon investment results as of March 31, 2021:

	As of March 31, 2021
	AUM subject to performance-based fees		Unearned performance-based fees
Contractual Period Ending:
Quarter Ended September 30, 2021	$	375,886,495	$	9,928,373
Quarter Ended December 31, 2021	67,514,790		125,672
Total	$	443,401,285	$	10,054,045

The contractual end dates highlight the time remaining until the performance-based fees are scheduled to be earned. The amount of performance-based fees that would be recognized based upon investments results as of March 31, 2021, will increase or decrease based on future client investment results through the end of the contractual period. The Company cannot assure that it will earn the unearned amounts set forth above.

Revenue Recognition – Mutual Fund Administration

DHCM has an administrative and transfer agency services agreement with the Funds under which DHCM performs certain services for each Fund. These services include performance obligations such as mutual fund administration, fund accounting, transfer agency, and other related functions. These services are performed concurrently under DHCM's agreement with the Funds, all performance obligations to provide these administrative services are satisfied over time, and the Company recognizes the related revenue as time progresses. Each Fund pays DHCM a fee for performing these services, which is calculated using an annual rate multiplied by the average daily net assets of each respective Fund share class. These fees are thereby constrained and represent variable consideration, and they are excluded from revenue until the AUM on which DHCM bills the Funds is no longer subject to market fluctuations.

The Funds have selected and contractually engaged certain vendors to fulfill various services to benefit the Funds’ shareholders or to satisfy regulatory requirements of the Funds. These services include, among others, required shareholder mailings, federal and state registrations, and legal and audit services. In fulfilling a portion of its role under the administration agreement with the Funds, DHCM acts as agent and pays for these services on behalf of the Funds. Each vendor is independently responsible for fulfillment of the services it has been engaged to provide and negotiates its fees and terms directly with the management and board of trustees of the Funds. Each year, the Funds' board of trustees reviews the fee that each Fund pays to DHCM, and specifically considers the contractual expenses that DHCM pays on behalf of the Funds. As a result, DHCM is not involved in the delivery or pricing of these services, and bears no risk related to these services. Revenue has been recorded net of these Fund-related expenses. In addition, DHCM advances the upfront commissions that are paid to brokers who sell Class C shares of the Funds. These advances are capitalized and amortized over 12 months to correspond with the repayments DHCM receives from the principal underwriter to recoup this commission advancement. During the first quarter of 2021, Class C shares were eliminated and converted to Investor Class shares. As a result, no material financing activity will be recognized in future periods.

Mutual fund administration gross and net revenue are summarized below:

	Three Months Ended   March 31,
	2021		2020
Mutual fund administration:
Administration revenue, gross	$	6,926,414	$	5,592,658
Fund related expense	(4,466,157)		(3,827,249)
Revenue, net of related expenses	2,460,257		1,765,409
C-Share financing:
Broker commission advance repayments	33,594		63,542
Broker commission amortization	(48,521)		(60,886)
Financing activity, net	(14,927)		2,656
Mutual fund administration revenue, net	$	2,445,330	$	1,768,065

Income Taxes

The Company accounts for current and deferred income taxes through an asset and liability approach. Deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company is subject to examination by federal and applicable state and local jurisdictions for various tax periods. The Company’s income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which it does business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws among those jurisdictions, and the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company’s estimates of income tax liabilities may differ from actual payments or assessments. The Company regularly assesses its positions with regard to tax exposures and records liabilities for these uncertain tax positions and related interest and penalties, if any, according to the principles of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740, Income Taxes. The Company records interest and penalties within income tax expense on the income statement. See Note 8.

Earnings Per Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period, which includes unvested restricted shares. See Note 9.

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Investments

3 Months Ended

Mar. 31, 2021

Investments, Debt and Equity Securities [Abstract]

Investments

Investments

The following table summarizes the carrying value of the Company's investments as of March 31, 2021 and December 31, 2020:

	As of
	March 31, 2021		December 31, 2020
Fair value investments:
Securities held in Consolidated Funds(a)	$	47,164,927	$	33,233,307
Company sponsored investments	95,530,265		95,167,829
Total Investments	$	142,695,192	$	128,401,136

(a) Of the securities held in the Consolidated Funds as of March 31, 2021, the Company directly held $35.0 million and noncontrolling shareholders held $12.2 million. Of the securities held in the Consolidated Funds as of December 31, 2020, the Company directly held $23.6 million and noncontrolling shareholders held $9.6 million.

The components of net investment income (loss) are as follows:

	Three Months Ended March 31,
	2021		2020
Realized gains (losses)	$	2,523,505	$	(817,539)
Unrealized gains (losses)	2,505,344		(22,467,598)
Dividends	665,009		894,413
Other	(30,404)		(7,368)
Investment income (loss), net	$	5,663,454	$	(22,398,092)

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Fair Value Measurements (Notes)

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company determines the fair value of its cash equivalents and certain investments using the following broad levels listed below:

Level 1 - Unadjusted quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-driven valuations in which all significant inputs are observable.

Level 3 - Valuations derived from techniques in which significant inputs are unobservable. We do not value any investments using Level 3 inputs.

These levels are not necessarily indicative of the risk or liquidity associated with investments.

The following table summarizes investments that are recognized in the Company's consolidated balance sheet using fair value measurements determined based upon the differing levels as of March 31, 2021:

	Level 1		Level 2		Level 3		Total
Cash equivalents	$	77,122,682	$	—	$	—	$	77,122,682
Fair value investments:
Securities held in Consolidated Funds(a)	29,702,152		17,462,775		—		$	47,164,927
Company-sponsored investments	$	95,530,265	$	—	$	—	$	95,530,265

(a) Of the securities held in the Consolidated Funds as of March 31, 2021, the Company directly held $35.0 million and noncontrolling shareholders held $12.2 million.

The Company determines transfers between fair value hierarchy levels at the end of the reporting period. There were no transfers in or out of the levels during the three months ended March 31, 2021.

Changes to fair values of the investments are recorded in the Company’s consolidated statements of income as investment income (loss), net.

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Line of Credit

3 Months Ended

Mar. 31, 2021

Debt Disclosure [Abstract]

Line of Credit

Line of Credit

The Company has a committed line of credit agreement (the "Credit Agreement") with a commercial bank that matures on December 24, 2021, which permits the Company to borrow up to $25.0 million. Borrowings under the Credit Agreement bear interest at a rate equal to LIBOR plus 1.00%. The Company pays a commitment fee on the unused portion of the facility, accruing at a rate per annum of 0.10%.

The proceeds of the Credit Agreement may be used by the Company and its subsidiaries for ongoing working capital needs, to seed new and existing investment strategies, and for other general corporate purposes. The Credit Agreement contains customary representations, warranties and covenants.

The Company did not borrow under the Credit Agreement for the period ended March 31, 2021

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Compensation Plans

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Compensation Plans

Compensation Plans

Share-Based Payment Transactions

The Company issues restricted stock grants under the 2014 Equity and Cash Incentive Plan (the "2014 Plan"). Restricted stock grants represent common shares issued and outstanding upon grant subject to vesting restrictions. The Company has historically issued stock grants that cliff vest after five years to all new employees upon hire and as additional grants to key employees on a periodic basis. While the Company currently plans to continue to issue five-year cliff vest grants to new employees, beginning in 2021, new long-term incentive awards to existing employees were made in the form of three-year graded vesting stock grants.

Restricted stock grants issued under the 2014 Plan are valued based upon the fair market value of the common shares on the applicable grant date. The restricted stock grants are recorded as deferred compensation in the equity section of the balance sheet on the grant date and then recognized as compensation expense on a straight-line basis over the vesting period of the respective grant. The Company's policy is to adjust compensation expense for forfeitures as they occur.

The following table represents a roll-forward of outstanding restricted stock and related activity for the three months ended March 31, 2021:

	Shares	Weighted-Average Grant Date Price per Share
Outstanding restricted stock as of December 31, 2020	183,718	$	173.80
Grants issued	52,434	155.64
Grants vested	(7,600)	174.98
Grants forfeited	(13,200)	156.88
Total outstanding restricted stock as of March 31, 2021	215,352	$	168.34

As of March 31, 2021, 181,471 common shares remained available for grants under the 2014 Plan.

Total deferred equity compensation related to unvested restricted stock was $19.4 million as of March 31, 2021. The recognition of compensation expense related to deferred compensation over the remaining vesting periods is as follows:

Nine Months   Remaining In
2021		2022		2023		2024		2025		Thereafter		Total
$	5,926,670	$	6,730,500	$	4,765,545	$	1,719,462	$	297,487	$	1,256	$	19,440,920

Employee Stock Purchase Plan

The Company adopted the Diamond Hill Investment Group, Inc. Employee Stock Purchase Plan (the "ESPP") effective October 27, 2020. Under the ESPP, eligible employees may purchase shares of the Company's common stock at 85% of the fair market value on the last day of each offering period. Each offering period is approximately three months coinciding with the Company's fiscal quarters. During the three-month period ended March 31, 2021, ESPP participants purchased 2,583 shares of common stock for $0.3 million and the Company recorded $0.1 million of share based payment expense related to these purchases.

Stock Grant Transactions

The following table represents common shares issued as part of the Company's incentive compensation program during the three-month period ended March 31, 2021, and 2020:

	Shares Issued	Grant Date Value
March 31, 2021	3,681	$	529,806
March 31, 2020	23,640	$	3,396,359

401(k) Plan

The Company sponsors a 401(k) plan in which all employees are eligible to participate. Employees may contribute a portion of their compensation subject to certain limits based on federal tax laws. The Company matches employee contributions equal to 250 percent of the first six percent of an employee’s compensation contributed to the plan. As of January 1, 2021, the Company settles the 401(k) plan matching contributions in cash or common shares of the Company based on the election of the employees. Prior to January 1, 2021, the Company made all matching contributions in common shares of the Company.

Deferred Compensation Plans

The Company offers two deferred compensation plans, the Diamond Hill Fixed Term Deferred Compensation Plan and the Diamond Hill Variable Term Deferred Compensation Plan (together, the “Plans”). Under the Plans, participants may elect to voluntarily defer, for a minimum of five years, certain incentive compensation that the Company then contributes into the Plans. Participants are responsible for designating investment options for the assets they contribute, and the distribution paid to each participant reflects any gains or losses on the assets realized in connection with the Plans. Assets held in the Plans are included in the Company’s investment portfolio, and the associated obligation to participants is included in deferred compensation liability. Deferred compensation liability was $33.4 million and $33.2 million as of March 31, 2021 and December 31, 2020, respectively.

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Operating Lease

3 Months Ended

Mar. 31, 2021

Leases [Abstract]

Operating Lease

Operating Lease

The Company currently leases office space of approximately 37,829 square feet at one location.

As of March 31, 2021, the carrying value of this right-of-use asset, which is included in property and equipment, was approximately $1.9 million net of deferred rent on the consolidated balance sheets. As of March 31, 2021, the carrying value of the lease liability was approximately $2.4 million, which is included in accounts payable and accrued expenses on the consolidated balance sheets.

The following table summarizes the total lease and operating expenses for the three-month periods ended March 31, 2021 and 2020:

	March 31, 2021		March 31, 2020
Three Months Ended	$	209,042	$	225,858

The approximate future minimum lease payments under the operating lease are as follows:

Future Minimum Lease Payments
Nine Months   Remaining In
2021		2022		2023		2024		2025		Total
$	468,134	$	624,179	$	624,179	$	624,179	$	156,045	$	2,496,716

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Income Taxes

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company has determined its interim tax provision projecting an estimated annual effective tax rate.

A reconciliation of the statutory federal tax rate to the Company’s effective income tax rate is as follows:

	Three Months Ended   March 31,
	2021		2020
Statutory U.S. federal income tax rate	21.0	%	21.0	%
State and local income taxes, net of federal benefit	4.4	%	4.5	%
Internal revenue code section 162 limitations	1.1	%	2.3	%
Other	—	%	0.2	%
Unconsolidated effective income tax rate	26.5	%	28.0	%
Impact attributable to redeemable noncontrolling interests(a)	(0.8)	%	(58.8)	%
Effective income tax rate	25.7	%	(30.8)	%

(a) The provision for income taxes includes the impact of the operations of the Consolidated Funds, which are not subject to federal income taxes. Accordingly, a portion of the Company’s earnings are not subject to corporate tax levels.

Absent the impact attributable to redeemable noncontrolling interests, the estimated unconsolidated effective income tax rate would have been 26.5%. The Company's actual effective tax rate for fiscal year ended December 31, 2021 could be materially different from the projected rate as of March 31, 2021.

The net temporary differences incurred to date will reverse in future periods as the Company generates taxable earnings. The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets recorded. The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of March 31, 2021 and December 31, 2020, no valuation allowance was deemed necessary.

FASB ASC 740, Income Taxes, prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  The Company recognizes tax benefits related to positions taken, or expected to be taken, on its tax returns, only if the positions are more likely than not sustainable. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. The Company did not record an accrual for tax related uncertainties or unrecognized tax positions as of March 31, 2021 or December 31, 2020.

The Company did not recognize any interest and penalties during the three months ended March 31, 2021

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Earnings Per Share

3 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

The Company’s common shares outstanding consist of all shares issued and outstanding, including unvested restricted shares. Basic and diluted EPS are calculated under the two-class method. The following table sets forth the computation for basic and diluted EPS:

	Three Months Ended   March 31,
	2021		2020
Net Income (Loss)	$	14,262,613	$	(2,528,368)
Less: Net loss (income) attributable to redeemable noncontrolling interest	(554,102)		4,058,476
Net income attributable to common shareholders	$	13,708,511	$	1,530,108
Weighted average number of outstanding shares - Basic	3,156,768		3,272,761
Weighted average number of outstanding shares - Diluted	3,156,768		3,272,761
Earnings per share attributable to common shareholders
Basic	$	4.34	$	0.47
Diluted	$	4.34	$	0.47

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Sale of Assets of Diamond Hill's High Yield-Focused Fund

3 Months Ended

Mar. 31, 2021

Discontinued Operations and Disposal Groups [Abstract]

Sale of Assets of Diamond Hill's High Yield-Focused Fund

Sale of Assets of Diamond Hill's High Yield-Focused Funds

DHCM entered into an asset purchase agreement dated February 2, 2021 (the “Purchase Agreement”) with Brandywine Global Investment Management, LLC (“Brandywine Global”), a specialist investment manager of Franklin Resources, Inc. Pursuant to the Purchase Agreement, Brandywine Global will acquire the businesses of DHCM’s two high yield-focused mutual funds - the Corporate Credit Fund and the High Yield Fund (the “Acquired Funds”).

In connection with the transaction, two of the Company’s portfolio managers and a research analyst will join Brandywine Global’s fixed income team.

Pursuant to the Purchase Agreement, DHCM will receive an initial cash payment at closing of up to $9.0 million based upon the closing date net revenue of the Acquired Funds, and may receive two additional payments of up to $13.0 million in the aggregate based on the net revenue of the Acquired Funds on the one-year anniversary of the closing date. There can be no assurance that all or any of these additional payment amounts will be received by DHCM.

The Purchase Agreement contains customary representations, warranties, and covenants and is subject to customary closing conditions, including a minimum net revenue requirement as of the closing date and approval by the shareholders of the Acquired Funds. The sale is expected to close on July 30, 2021, subject to approval of each Acquired Fund’s shareholders.

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Subsequent Events	3 Months Ended
	Mar. 31, 2021
Subsequent Events [Abstract]
Subsequent Events	Subsequent EventsOn April 26, 2021, the Company’s board of directors approved a cash dividend of $1.00 per share payable June 18, 2021, to shareholders of record as of June 3, 2021. This dividend will reduce shareholders' equity by approximately $3.2 million.

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited, condensed, consolidated financial statements as of March 31, 2021 and December 31, 2020, and for the three-month periods ended March 31, 2021 and March 31, 2020, for Diamond Hill Investment Group, Inc. and its subsidiaries (referred to in these notes to the condensed consolidated financial statements as "the Company," "management," "we," "us," and "our"), have been prepared in accordance with United States generally accepted accounting principles ("GAAP"), with the instructions to Form 10-Q, and with Article 10 of Securities and Exchange Commission (the "SEC") Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair statement of the financial condition and results of operations as of the dates, and for the interim periods, presented have been included. These unaudited, condensed, consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements of the Company included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the "2020 Form 10-K"), as filed with the SEC.

Use of Estimates

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions related to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expense during the period. Actual results could differ from those estimates.

Reclassification

Reclassification

Certain prior period amounts and disclosures may have been reclassified to conform to the current period's financial presentation.

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include the operations of the Company and its controlled subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.

The Company holds certain investments in the Funds for general corporate investment purposes, to provide seed capital for newly formed strategies, or to add capital to existing strategies. The Funds are organized in a series fund structure in which there are multiple mutual funds within one trust (the "Trust"). The Trust is an open-end investment company registered under the Investment Company Act of 1940, as amended (the"1940 Act").

The Company performs its consolidation analysis at the individual Fund level and has concluded that the Funds are voting rights entities ("VREs") because the structure of the Funds is such that the shareholders are deemed to have the power through voting rights to direct the activities that most significantly impact each Fund's economic performance. To the extent material,

these Funds are consolidated if Company ownership, directly or indirectly, represents a majority interest (greater than 50%). The Company records redeemable noncontrolling interests in consolidated investments for which the Company's ownership is less than 100%. The Company has consolidated the Diamond Hill Large Cap Concentrated Fund, the Diamond Hill International Fund, and the Diamond Hill Global Fund (collectively, the "Consolidated Funds") as of March 31, 2021.

Redeemable Noncontrolling Interest

Redeemable Noncontrolling Interest

Redeemable noncontrolling interest represents third-party interests in the Consolidated Funds. This interest is redeemable at the option of the investors, and therefore, is not treated as permanent equity. Redeemable noncontrolling interest is recorded at redemption value, which approximates the fair value each reporting period.

Segment Information

Segment Information

Management has determined that the Company operates in one business segment, which is providing investment management and administration services to mutual funds and separately managed accounts. Therefore, the Company does not present disclosures relating to operating segments in annual or interim financial statements.

Cash and Cash Equivalents

Cash and Cash EquivalentsCash and cash equivalents include demand deposits and money market mutual funds held by DHCM.

Accounts Receivable

Accounts ReceivableThe Company records accounts receivable when they are due and presents them on the balance sheet net of any allowance for doubtful accounts. Accounts receivable are written off when they are determined to be uncollectible. Any allowance for doubtful accounts is estimated based on the Company’s historical losses, existing conditions in the industry, and the financial stability of the individual or entity that owes the receivable.

Investments

Investments

Management determines the appropriate classification of its investments at the time of purchase and re-evaluates its determination for each reporting period.

Investments in the Funds that DHCM advises, where the Company has neither control nor the ability to exercise significant influence, as well as securities held in the Consolidated Funds are measured at fair value based on quoted market prices. Unrealized gains and losses are recorded as investment income (loss) in the Company's consolidated statements of income.

Investments classified as equity method investments represent investments in which the Company owns between 20-50% of the outstanding voting interests in the entity or when it is determined that the Company is able to exercise significant influence but not control over the investments. When using the equity method, the Company recognizes its respective share of the investee's net income or loss for the period, which is recorded as investment income in the Company's consolidated statements of income.

As of March 31, 2021, the Company did not have any investments classified as equity method investments.

Property and Equipment

Property and Equipment

Property and equipment, consisting of leasehold improvements, right-of use lease assets, computer equipment, capitalized software, furniture, and fixtures are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated lives of the assets.

Revenue Recognition

Revenue Recognition – GeneralThe Company recognizes revenue when it satisfies performance obligations under the terms of a contract with a client. The Company earns substantially all of its revenue from investment advisory and fund administration contracts. Investment advisory and administration fees, generally calculated as a percentage of assets under management ("AUM"), are recorded as revenue as services are performed. In addition to fixed fees based on a percentage of AUM, certain client accounts also provide periodic performance-based fees.

Revenue Recognition – Investment Advisory Fees

The Company's investment advisory contracts with clients have a single performance obligation because the contracted services are not separately identifiable from other obligations in the contracts and, therefore, are not distinct. All performance obligations to provide advisory services are satisfied over time and the Company recognizes revenue as time passes.

The fees the Company receives for its services under its investment advisory contracts are based on AUM, which changes based on the value of securities held under each advisory contract. These fees are thereby constrained and represent variable consideration, and they are excluded from revenue until the AUM on which the Company's client is billed is no longer subject to market fluctuations.

The Company also provides services to model delivery programs in which the Company provides its strategy model portfolio to

the sponsor of the model delivery. The Company is paid a portion of the model delivery fee for its services by the program

sponsor at a pre-determined rate based on assets in the program. Model delivery program revenues were $0.9 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively. Model delivery program revenue is included in investment advisory fees in the consolidated statements of income.

Revenue Recognition – Performance-Based Fees

The Company manages certain client accounts that provide for performance-based fees. These fees are calculated based on client investment results over rolling five-year periods. The Company records performance-based fees when it is probable that a significant reversal of the revenue will not occur.

Revenue Recognition – Mutual Fund Administration

DHCM has an administrative and transfer agency services agreement with the Funds under which DHCM performs certain services for each Fund. These services include performance obligations such as mutual fund administration, fund accounting, transfer agency, and other related functions. These services are performed concurrently under DHCM's agreement with the Funds, all performance obligations to provide these administrative services are satisfied over time, and the Company recognizes the related revenue as time progresses. Each Fund pays DHCM a fee for performing these services, which is calculated using an annual rate multiplied by the average daily net assets of each respective Fund share class. These fees are thereby constrained and represent variable consideration, and they are excluded from revenue until the AUM on which DHCM bills the Funds is no longer subject to market fluctuations.

The Funds have selected and contractually engaged certain vendors to fulfill various services to benefit the Funds’ shareholders or to satisfy regulatory requirements of the Funds. These services include, among others, required shareholder mailings, federal and state registrations, and legal and audit services. In fulfilling a portion of its role under the administration agreement with the Funds, DHCM acts as agent and pays for these services on behalf of the Funds. Each vendor is independently responsible for fulfillment of the services it has been engaged to provide and negotiates its fees and terms directly with the management and board of trustees of the Funds. Each year, the Funds' board of trustees reviews the fee that each Fund pays to DHCM, and specifically considers the contractual expenses that DHCM pays on behalf of the Funds. As a result, DHCM is not involved in the delivery or pricing of these services, and bears no risk related to these services. Revenue has been recorded net of these Fund-related expenses. In addition, DHCM advances the upfront commissions that are paid to brokers who sell Class C shares of the Funds. These advances are capitalized and amortized over 12 months to correspond with the repayments DHCM receives from the principal underwriter to recoup this commission advancement. During the first quarter of 2021, Class C shares were eliminated and converted to Investor Class shares. As a result, no material financing activity will be recognized in future periods.

Income Taxes

Income Taxes

The Company accounts for current and deferred income taxes through an asset and liability approach. Deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company is subject to examination by federal and applicable state and local jurisdictions for various tax periods. The Company’s income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which it does business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws among those jurisdictions, and the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company’s estimates of income tax liabilities may differ from actual payments or assessments. The Company regularly assesses its positions with regard to tax exposures and records liabilities for these uncertain tax positions and related interest and penalties, if any, according to the principles of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740, Income Taxes. The Company records interest and penalties within income tax expense on the income statement.

Earnings Per Share

Earnings Per Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period, which includes unvested restricted shares. See Note 9.

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Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

Disaggregation of Revenue

Revenue earned during the three months ended March 31, 2021 and 2020 under contracts with clients include:

	Three Months Ended March 31, 2021
	Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	$	26,510,701	$	2,445,330	$	28,956,031
Sub-advised funds and separately managed accounts	10,058,402		—		10,058,402
	$	36,569,103	$	2,445,330	$	39,014,433

	Three Months Ended March 31, 2020
	Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	$	23,454,563	$	1,768,065	$	25,222,628
Sub-advised funds and separately managed accounts	6,703,117		—		6,703,117
	$	30,157,680	$	1,768,065	$	31,925,745

Assets under Management (AUM) Subject to Incentive Fees and Incentive Fees

The table below shows AUM subject to performance-based fees and the amount of performance-based fees that would be recognized based upon investment results as of March 31, 2021:

	As of March 31, 2021
	AUM subject to performance-based fees		Unearned performance-based fees
Contractual Period Ending:
Quarter Ended September 30, 2021	$	375,886,495	$	9,928,373
Quarter Ended December 31, 2021	67,514,790		125,672
Total	$	443,401,285	$	10,054,045

Mutual Fund Administration Gross and Net Revenue

Mutual fund administration gross and net revenue are summarized below:

	Three Months Ended   March 31,
	2021		2020
Mutual fund administration:
Administration revenue, gross	$	6,926,414	$	5,592,658
Fund related expense	(4,466,157)		(3,827,249)
Revenue, net of related expenses	2,460,257		1,765,409
C-Share financing:
Broker commission advance repayments	33,594		63,542
Broker commission amortization	(48,521)		(60,886)
Financing activity, net	(14,927)		2,656
Mutual fund administration revenue, net	$	2,445,330	$	1,768,065

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Investments (Tables)

3 Months Ended

Mar. 31, 2021

Investments, Debt and Equity Securities [Abstract]

Summary of Market Value of Investments

The following table summarizes the carrying value of the Company's investments as of March 31, 2021 and December 31, 2020:

	As of
	March 31, 2021		December 31, 2020
Fair value investments:
Securities held in Consolidated Funds(a)	$	47,164,927	$	33,233,307
Company sponsored investments	95,530,265		95,167,829
Total Investments	$	142,695,192	$	128,401,136

(a) Of the securities held in the Consolidated Funds as of March 31, 2021, the Company directly held $35.0 million and noncontrolling shareholders held $12.2 million. Of the securities held in the Consolidated Funds as of December 31, 2020, the Company directly held $23.6 million and noncontrolling shareholders held $9.6 million.

Schedule of Investment Income

The components of net investment income (loss) are as follows:

	Three Months Ended March 31,
	2021		2020
Realized gains (losses)	$	2,523,505	$	(817,539)
Unrealized gains (losses)	2,505,344		(22,467,598)
Dividends	665,009		894,413
Other	(30,404)		(7,368)
Investment income (loss), net	$	5,663,454	$	(22,398,092)

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value, Assets Measured on Recurring Basis

The following table summarizes investments that are recognized in the Company's consolidated balance sheet using fair value measurements determined based upon the differing levels as of March 31, 2021:

	Level 1		Level 2		Level 3		Total
Cash equivalents	$	77,122,682	$	—	$	—	$	77,122,682
Fair value investments:
Securities held in Consolidated Funds(a)	29,702,152		17,462,775		—		$	47,164,927
Company-sponsored investments	$	95,530,265	$	—	$	—	$	95,530,265

(a) Of the securities held in the Consolidated Funds as of March 31, 2021, the Company directly held $35.0 million and noncontrolling shareholders held $12.2 million.

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Compensation Plans (Tables)

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Roll-Forward of Outstanding Restricted Stock Grants Issued

The following table represents a roll-forward of outstanding restricted stock and related activity for the three months ended March 31, 2021:

	Shares	Weighted-Average Grant Date Price per Share
Outstanding restricted stock as of December 31, 2020	183,718	$	173.80
Grants issued	52,434	155.64
Grants vested	(7,600)	174.98
Grants forfeited	(13,200)	156.88
Total outstanding restricted stock as of March 31, 2021	215,352	$	168.34

Expense Recognition of Deferred Compensation

The recognition of compensation expense related to deferred compensation over the remaining vesting periods is as follows:

Nine Months   Remaining In
2021		2022		2023		2024		2025		Thereafter		Total
$	5,926,670	$	6,730,500	$	4,765,545	$	1,719,462	$	297,487	$	1,256	$	19,440,920

Schedule of Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Grant Date Intrinsic Value

The following table represents common shares issued as part of the Company's incentive compensation program during the three-month period ended March 31, 2021, and 2020:

	Shares Issued	Grant Date Value
March 31, 2021	3,681	$	529,806
March 31, 2020	23,640	$	3,396,359

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Operating Lease (Tables)

3 Months Ended

Mar. 31, 2021

Leases [Abstract]

Summary of Total Lease and Operating Expenses

The following table summarizes the total lease and operating expenses for the three-month periods ended March 31, 2021 and 2020:

	March 31, 2021		March 31, 2020
Three Months Ended	$	209,042	$	225,858

Future Minimum Lease Payments under Operating Leases

The approximate future minimum lease payments under the operating lease are as follows:

Future Minimum Lease Payments
Nine Months   Remaining In
2021		2022		2023		2024		2025		Total
$	468,134	$	624,179	$	624,179	$	624,179	$	156,045	$	2,496,716

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

Reconciliation of the statutory federal tax rate to effective income tax rate

A reconciliation of the statutory federal tax rate to the Company’s effective income tax rate is as follows:

	Three Months Ended   March 31,
	2021		2020
Statutory U.S. federal income tax rate	21.0	%	21.0	%
State and local income taxes, net of federal benefit	4.4	%	4.5	%
Internal revenue code section 162 limitations	1.1	%	2.3	%
Other	—	%	0.2	%
Unconsolidated effective income tax rate	26.5	%	28.0	%
Impact attributable to redeemable noncontrolling interests(a)	(0.8)	%	(58.8)	%
Effective income tax rate	25.7	%	(30.8)	%

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

Computation for Earnings Per Share

The following table sets forth the computation for basic and diluted EPS:

	Three Months Ended   March 31,
	2021		2020
Net Income (Loss)	$	14,262,613	$	(2,528,368)
Less: Net loss (income) attributable to redeemable noncontrolling interest	(554,102)		4,058,476
Net income attributable to common shareholders	$	13,708,511	$	1,530,108
Weighted average number of outstanding shares - Basic	3,156,768		3,272,761
Weighted average number of outstanding shares - Diluted	3,156,768		3,272,761
Earnings per share attributable to common shareholders
Basic	$	4.34	$	0.47
Diluted	$	4.34	$	0.47

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Significant Accounting Policies - Narrative (Detail)	3 Months Ended
	Mar. 31, 2021 USD ($) Segment	Mar. 31, 2020 USD ($)	Dec. 31, 2020 USD ($)
Business Organization And Significant Accounting Policies [Line Items]
Number of business segment | Segment	1
Accounts receivable, related parties	$ 12,300,000		$ 10,500,000
Client performance period	5 years
Revenue	$ 39,014,433	$ 31,925,745
Advance commissions amortization period	12 months
Variable Rate Fees
Business Organization And Significant Accounting Policies [Line Items]
Revenue	$ 900,000	$ 700,000

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Significant Accounting Policies - Revenues From Contracts with Customers (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Disaggregation of Revenue [Line Items]
Revenue	$ 39,014,433	$ 31,925,745
Investment advisory
Disaggregation of Revenue [Line Items]
Revenue	36,569,103	30,157,680
Mutual fund administration revenue, net
Disaggregation of Revenue [Line Items]
Revenue	2,445,330	1,768,065
Proprietary funds
Disaggregation of Revenue [Line Items]
Revenue	28,956,031	25,222,628
Proprietary funds | Investment advisory
Disaggregation of Revenue [Line Items]
Revenue	26,510,701	23,454,563
Proprietary funds | Mutual fund administration revenue, net
Disaggregation of Revenue [Line Items]
Revenue	2,445,330	1,768,065
Sub-advised funds and separately managed accounts
Disaggregation of Revenue [Line Items]
Revenue	10,058,402	6,703,117
Sub-advised funds and separately managed accounts | Investment advisory
Disaggregation of Revenue [Line Items]
Revenue	10,058,402	6,703,117
Sub-advised funds and separately managed accounts | Mutual fund administration revenue, net
Disaggregation of Revenue [Line Items]
Revenue	$ 0	$ 0

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Significant Accounting Policies - Assets under Management (AUM) Subject to Incentive Fees and Incentive Fees (Detail)	3 Months Ended
	Mar. 31, 2021 USD ($)
Quarter Ending December 31, 2019
Principal Transaction Revenue [Line Items]
AUM subject to performance-based fees	$ 67,514,790
Unearned performance-based fees	125,672
Quarter Ending September 30, 2021
Principal Transaction Revenue [Line Items]
AUM subject to performance-based fees	375,886,495
Unearned performance-based fees	9,928,373
Total
Principal Transaction Revenue [Line Items]
AUM subject to performance-based fees	443,401,285
Unearned performance-based fees	$ 10,054,045

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Significant Accounting Policies - Mutual Fund Administration Gross and Net Revenue (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Revenue from External Customer [Line Items]
Revenue	$ 39,014,433	$ 31,925,745
Administration revenue, gross
Revenue from External Customer [Line Items]
Revenue	6,926,414	5,592,658
Fund related expense
Revenue from External Customer [Line Items]
Expenses	4,466,157	3,827,249
Revenue, net of related expenses
Revenue from External Customer [Line Items]
Revenue	2,460,257	1,765,409
Broker Commission
Revenue from External Customer [Line Items]
Revenue	33,594	63,542
Expenses	48,521	60,886
Financing activity, net
Revenue from External Customer [Line Items]
Revenue	(14,927)	2,656
Mutual fund administration revenue, net
Revenue from External Customer [Line Items]
Revenue	$ 2,445,330	$ 1,768,065

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Investments - Summary of Market Value of Investments (Detail) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Investment Holdings [Line Items]
Total Investments	$ 142,695,192	$ 128,401,136
Securities held in Consolidated Funds
Investment Holdings [Line Items]
Fair value investments	47,164,927	33,233,307
Securities held in Consolidated Funds | Parent
Investment Holdings [Line Items]
Fair value investments	35,000,000.0	23,600,000
Securities held in Consolidated Funds | Redeemable Noncontrolling Interest
Investment Holdings [Line Items]
Fair value investments	12,200,000	9,600,000
Company sponsored investments
Investment Holdings [Line Items]
Fair value investments	$ 95,530,265	$ 95,167,829

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Investments - Investment Income (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Investments, Debt and Equity Securities [Abstract]
Realized gains (losses)	$ 2,523,505	$ (817,539)
Unrealized gains (losses)	2,505,344	(22,467,598)
Dividends	665,009	894,413
Other	(30,404)	(7,368)
Investment income (loss), net	$ 5,663,454	$ (22,398,092)

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Fair Value Measurements Summary of Investment Values Based Upon Fair Value Hierarchy (Detail)	Mar. 31, 2021 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	$ 77,122,682
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	77,122,682
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0
Securities held in Consolidated Funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value investments:	47,164,927
Securities held in Consolidated Funds | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value investments:	29,702,152
Securities held in Consolidated Funds | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value investments:	17,462,775
Securities held in Consolidated Funds | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value investments:	0
Company sponsored investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value investments:	95,530,265
Company sponsored investments | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value investments:	95,530,265
Company sponsored investments | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value investments:	0
Company sponsored investments | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value investments:	$ 0

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Fair Value Measurements Textual (Details) - Securities held in Consolidated Funds - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value investments	$ 47,164,927	$ 33,233,307
Parent
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value investments	35,000,000.0	23,600,000
Redeemable Noncontrolling Interest
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value investments	$ 12,200,000	$ 9,600,000

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Line of Credit (Details) - The Credit Agreement - Line of Credit	3 Months Ended
	Mar. 31, 2021 USD ($)
Line of Credit Facility [Line Items]
Maximum borrowing amount	$ 25,000,000.0
Commitment fee rate on unused borrowings	0.10%
London Interbank Offered Rate (LIBOR)
Line of Credit Facility [Line Items]
Line of credit facility, interest rate description	1.00%

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Compensation Plans - Roll-Forward of Outstanding Restricted Stock Grants Issued (Detail)	3 Months Ended
	Mar. 31, 2021 $ / shares shares
Shares
Outstanding shares, Beginning Balance (shares)	183,718
Outstanding shares, Ending Balance (shares)	215,352
Restricted stock
Shares
Outstanding shares, Beginning Balance (shares)	183,718
Shares issued (shares)	52,434
Grants vested (shares)	(7,600)
Grants forfeited (shares)	(13,200)
Outstanding shares, Ending Balance (shares)	215,352
Weighted-Average Grant Date Price per Share
Outstanding, Beginning of Period (usd per share) | $ / shares	$ 173.80
Grants issued (usd per share) | $ / shares	155.64
Grants vested (usd per share) | $ / shares	174.98
Grants forfeited (usd per share) | $ / shares	156.88
Outstanding, End of Period (usd per share) | $ / shares	$ 168.34

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Compensation Plans - Expense Recognition of Deferred Compensation (Detail) - Restricted stock	Mar. 31, 2021 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
2019 (Remaining Period)	$ 5,926,670
2020	6,730,500
2021	4,765,545
2022	1,719,462
2023	297,487
Thereafter	1,256
Total	$ 19,440,920

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Compensation Plans - Schedule of Grants Issued and Grant Date Fair Value (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Issuance of stock grants	$ 529,806	$ 3,396,359
Shares Issued
Shares issued (shares)	3,681	23,640
Grant Date Value
Shares issued (shares)	3,681	23,640
Issuance of stock grants	$ 529,806	$ 3,396,359

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Compensation Plans - Narrative (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Deferred compensation equity	$ (19,440,920)		$ (14,748,118)
Fully vested employee elected deferral period	5 years
Deferred compensation liability	$ 33,369,087		$ 33,241,952
Proceeds received under employee stock purchase plan	$ 342,528	$ 0
2014 Equity and Cash Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common shares available for issuance (in shares)	181,471
Employee Stock Purchase Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock Purchased During Period, Shares, Employee Stock Purchase Plans	2,583
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent	85.00%
Proceeds received under employee stock purchase plan	$ 300,000
Share-based payment expense	$ 100,000

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Operating Lease - Narrative (Detail) $ in Millions	3 Months Ended
	Mar. 31, 2021 USD ($) ft² location
Leases [Abstract]
Area of operating lease | ft²	37,829
Number of office space locations | location	1
Operating lease, right-of-use asset	$ 1.9
Operating lease, liability	$ 2.4

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Operating Lease - Summary of Total Lease and Operating Expenses (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Leases [Abstract]
Lease and operating expenses	$ 209,042
Lease and operating expenses		$ 225,858

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Operating Lease - Future Minimum Lease Payments under Operating Leases (Detail)	Mar. 31, 2021 USD ($)
Leases [Abstract]
Remainder of 2019	$ 468,134
2021	624,179
2022	624,179
2023	624,179
2024	156,045
Total future lease payments due	$ 2,496,716

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Income Taxes - Narrative (Detail)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Tax Disclosure [Abstract]
Unconsolidated effective income tax rate	26.50%	28.00%

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Income Taxes - Effective Tax Rate Reconciliation (Details)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Tax Disclosure [Abstract]
Statutory U.S. federal income tax rate	21.00%	21.00%
State and local income taxes, net of federal benefit	4.40%	4.50%
Internal revenue code section 162 limitations	1.10%	2.30%
Other	0.00%	0.20%
Unconsolidated effective income tax rate	26.50%	28.00%
Impact attributable to redeemable noncontrolling interests(a)	(0.80%)	(58.80%)
Effective income tax rate	25.70%	(30.80%)

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Earnings Per Share - Computation for Earnings Per Share (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Earnings Per Share [Abstract]
Net Income (Loss)	$ 14,262,613	$ (2,528,368)
Less: Net loss (income) attributable to redeemable noncontrolling interest	(554,102)	4,058,476
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$ 13,708,511	$ 1,530,108
Weighted average shares outstanding
Weighted average number of outstanding shares - Basic (in shares)	3,156,768	3,272,761
Weighted average number of outstanding shares - Diluted (in shares)	3,156,768	3,272,761
Earnings per share
Basic (USD per share)	$ 4.34	$ 0.47
Diluted (USD per share)	$ 4.34	$ 0.47

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Sale of Assets of Diamond Hill's High Yield-Focused Fund (Details) - Disposal Group, Disposed of by Sale, Not Discontinued Operations - Acquired Funds $ in Millions	Feb. 02, 2021 USD ($) payment
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Consideration transferred	$ 9.0
Number of additional payments | payment	2
Additional consideration	$ 13.0
Additional consideration, term	1 year

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Subsequent Events (Details) - Subsequent Event $ / shares in Units, $ in Millions	Apr. 26, 2021 USD ($) $ / shares
Subsequent Event [Line Items]
Dividend per share | $ / shares	$ 1.00
Reduction to stockholders' equity from dividend | $	$ 3.2