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DHIL > SEC Filings for DHIL > Form 10-Q on 1-Nov-2013All Recent SEC Filings




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, the Company 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 AUM, 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 American Taxpayer Relief Act of 2012 and the Jumpstart Our Business Startups 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 in Item 1A on Form 10-K. The terms the "Company," "management," "we," "us," and "our," mean Diamond Hill Investment Group, Inc. and its subsidiaries.


The Company, an Ohio corporation organized in 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 Partnerships. 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 and nine month periods ended September 30, 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 and nine month periods ended September 30, 2013 are not necessarily indicative of the results which may be expected for the entire fiscal year.

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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 and nine months ended September 30, 2013 and 2012:

                                       Assets Under Management by Product
                                               As of September 30,
        (in millions)                2013                2012          % Change
        Proprietary funds        $       6,819       $      5,203             31 %
        Sub-advised funds                  400                964            -59 %
        Institutional accounts           3,821              3,514              9 %

        Total AUM                $      11,040       $      9,681             14 %

                                          Assets Under Management
                                          by Investment Objective
                                            As of September 30,
                 (in millions)         2013         2012       % Change
                 Small Cap          $    1,270     $   966            31 %
                 Small-Mid Cap             665         319           108 %
                 Large Cap               5,678       5,536             3 %
                 Select (All Cap)          291         260            12 %
                 Long-Short              2,934       2,396            22 %
                 Strategic Income          202         204            -1 %

                 Total AUM          $   11,040     $ 9,681            14 %

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                                                    Change in Assets
                                                    Under Management
                                                  For the Three Months
                                                   Ended September 30,
           (in millions)                           2013            2012
           AUM at beginning of the period       $    10,427       $ 9,164
           Net cash inflows (outflows)
           proprietary funds                             78           161
           sub-advised funds                             57           (42 )
           institutional accounts                       (50 )        (191 )

                                                         85           (72 )
           Net market appreciation and income           528           589

           Increase during the period                   613           517

           AUM at end of the period             $    11,040       $ 9,681

                                                    Change in Assets
                                                    Under Management
                                                   For the Nine Months
                                                   Ended September 30,
           (in millions)                           2013            2012
           AUM at beginning of the period       $     9,429       $ 8,671
           Net cash inflows (outflows)
           proprietary funds                            437           368
           sub-advised funds                           (762 )        (117 )
           institutional accounts                      (225 )        (171 )

                                                       (550 )          80
           Net market appreciation and income         2,161           930

           Increase during the period                 1,611         1,010

           AUM at end of the period             $    11,040       $ 9,681

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