Summary of DIAMOND HILL INVESTMENT GROUP INC

ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-looking Statements
Throughout this Form 10-Q, the Company may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to such matters as anticipated operating results, prospects for achieving the critical threshold of assets under management, technological developments, economic trends (including interest rates and market volatility), expected transactions and acquisitions and similar matters. The words "believe," "expect," "anticipate," "estimate," "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, the actual results and experiences of the Company could differ materially from the anticipated results or other expectations expressed by the Company in its 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: the adverse effect from a decline in the securities markets; a decline in the performance of the Company's products; changes in interest rates; a general or prolonged downturn in the economy; changes in government policy and regulation, including monetary policy; changes in the Company's ability to attract or retain key employees; unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations; and other risks identified from time-to-time in the Company's public documents on file with the SEC.
General
Diamond Hill Investment Group, Inc. (the "Company"), an Ohio corporation organized in 1990, derives its consolidated revenue and net income from primarily investment advisory and fund administration services provided by its subsidiary Diamond Hill Capital Management, Inc. ("DHCM"). DHCM is a registered investment adviser under the Investment Advisers Act of 1940 providing investment advisory services to individuals and institutional investors through the Diamond Hill sponsored mutual funds, separate accounts, and private investment funds (generally known as "hedge funds"). The Company was first incorporated in April 1990. During the first quarter of 2008, the Company incorporated two new subsidiaries, Beacon Hill Fund Services, Inc. ("BHFS") and BHIL Distributors, Inc. ("BHIL") to collectively operate as Beacon Hill. Beacon Hill provides certain fund administration services and distribution services to mutual fund companies, including Diamond Hill Funds.
In this section, the Company discusses and analyzes the consolidated results of operations for the three and six month periods ending June 30, 2009 and 2008 and other factors that may affect future financial performance. The accompanying unaudited consolidated financial statements were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with United States generally accepted accounting principles. Accordingly, these financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto of the Company included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008. However, in the opinion of management, all adjustments (consisting of only normal recurring accruals) which are necessary for a fair presentation of the financial statements have been included. The results of operations for the three and six month periods ended June 30, 2009, are not necessarily indicative of the results which may be expected for the entire fiscal year.
The Company's revenue is derived primarily from investment advisory and administration fees received from Diamond Hill Funds and investment advisory fees received from separate accounts and private investment funds. Investment advisory and administration fees paid to the Company are based primarily on the value of the investment portfolios managed by the Company and fluctuate with changes in the total value of the AUM. Such fees are recognized in the period that the Company manages these assets. The Company can also earn performance incentive fees which are generally 20% annually on the amount of client investment performance in excess of a certain annual return hurdle. Because performance incentive fees are based primarily on the performance of client accounts, they will be volatile from period to period. The Company's major expense is employee compensation and benefits.

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Assets Under Management
As of June 30, 2009, assets under management ("AUM") totaled $4.7 billion, a 14%
decrease in comparison to June 30, 2008. 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 objective as of June 30, 2009 and 2008 and a roll-forward of
AUM activity for the six months ended June 30, 2009 and 2008:

                                         Assets Under Management by Product
                                                   As of June 30,
        (in millions)                  2009               2008           % Change
        Mutual funds               $      2,930       $      3,899             -25 %
        Separate accounts                 1,600              1,146              40 %
        Private investment funds            203                441             -54 %

        Total                      $      4,733       $      5,486             -14 %




                                         Assets Under Management by Objective
                                                    As of June 30,
       (in millions)                    2009               2008           % Change
       Small and Small-Mid Cap      $        589       $        548               7 %
       Large Cap and Select                1,862              1,221              52 %
       Long-Short                          2,149              3,466             -38 %
       Strategic and fixed income            133                251             -47 %

       Total                        $      4,733       $      5,486             -14 %




                                                                 Change in Assets Under Management
                                                                 For the Six Months Ended June 30,
(in millions)                                                      2009                     2008
AUM at beginning of the period                               $          4,510         $          4,403
Net cash inflows (outflows)
mutual funds                                                             (269 )                  1,223
separate accounts                                                         343                      222
private investment funds                                                  (38 )                    (44 )

                                                                           36                    1,401
Net market appreciation (depreciation) and income                         187                     (318 )

Increase during the period                                                223                    1,083

AUM at end of the period                                     $          4,733         $          5,486

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