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DHIL > SEC Filings for DHIL > Form 10-Q on 3-May-2013All Recent SEC Filings

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Form 10-Q for DIAMOND HILL INVESTMENT GROUP INC


3-May-2013

Quarterly Report


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, Diamond Hill Investment Group, Inc. may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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; changes in national and local economic and political conditions, including the effects of implementation of the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012 and the continuing economic uncertainty in various parts of the world; 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 other public documents on file with the U. S. Securities and Exchange Commission ("SEC"), including those discussed below in Item 1A of Part II. When we use the terms the "Company," "management," "we," "us," and "our," we mean Diamond Hill Investment Group, Inc. and its subsidiaries.

General

The Company, an Ohio corporation organized in April 1990, derives its consolidated revenue and net income from investment advisory and fund administration services provided by its subsidiaries DHCM, BHFS, and BHIL. BHFS and BHIL collectively operate as Beacon Hill. DHCM is a registered investment adviser under the Investment Advisers Act of 1940. DHCM sponsors, distributes, and provides investment advisory and related services to various U.S. and foreign clients through the Funds, institutional accounts, and private investment funds (generally known as "hedge funds"). Beacon Hill provides fund administration and statutory underwriting services to various clients, including the Funds.

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

In this section, the Company discusses and analyzes the consolidated results of operations for the three month periods ended March 31, 2013 and 2012 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, 2012. 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 month period ended March 31, 2013 are not necessarily indicative of the results which may be expected for the entire fiscal year.


Table of Contents

Assets Under Management

The Company's revenue is derived 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 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's primary expense is employee compensation and benefits.

Revenues are highly dependent on both the value and composition of AUM. The following is a summary of the Company's AUM by product, investment objective, and a roll-forward of the change in AUM for the three months ended March 31, 2013 and 2012:

                                       Assets Under Management by Product
                                                 As of March 31,
        (in millions)                2013                2012          % Change
        Proprietary funds        $       5,964       $      4,856             23 %
        Sub-advised funds                1,030              1,008              2 %
        Institutional accounts           3,580              3,496              2 %

        Total AUM                $      10,574       $      9,360             13 %


                                             Assets Under Management
                                             by Investment Objective
                                                 As of March 31,
        (in millions)                2013                2012          % Change
        Small Cap                $       1,082       $        997              9 %
        Small-Mid Cap                      460                299             54 %
        Large Cap                        5,801              5,244             11 %
        Select (All Cap)                   285                355            -20 %
        Long-Short                       2,747              2,277             21 %
        Strategic Income                   199                188              6 %

        Total AUM                $      10,574       $      9,360             13 %

                                            Change in Assets Under Management
                                          For the Three Months Ended March 31,
  (in millions)                              2013                       2012
  AUM at beginning of the period       $           9,429           $         8,671
  Net cash inflows (outflows)
  proprietary funds                                  142                        70
  sub-advised funds                                  (37 )                     (60 )
  institutional accounts                             (33 )                    (113 )

                                                      72                      (103 )
  Net market appreciation and income               1,073                       792

  Increase during the period                       1,145                       689

  AUM at end of the period             $          10,574           $         9,360


Table of Contents

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