Associated Capital Group(AC) - 2023 Q4 - Annual Report

Part I Business Associated Capital Group provides alternative investment management and direct investment services, managing approximately $1.59 billion in assets as of December 31, 2023, under extensive U.S. and European regulation - The company's operations are segmented into alternative investment management and a direct investment business focused on controlling other entities[16] - Investment management is primarily conducted through its wholly-owned subsidiary, Gabelli & Company Investment Advisers, Inc. (GCIA), specializing in risk and event arbitrage portfolios[17] Assets Under Management (AUM) Trend | Year | Total AUM (in millions) | | :--- | :--- | | 2023 | $1,591 | | 2022 | $1,842 | | 2021 | $1,781 | | 2020 | $1,351 | | 2019 | $1,716 | - The direct investment business, launched in 2017, includes Gabelli Private Equity Partners, LLC and Gabelli Principal Strategies Group, LLC, targeting growth capital, leveraged buyouts, and restructurings in small and mid-sized companies[23][24] Business Strategy The company's strategy emphasizes global growth through its proprietary investment approach, expanding investment partnerships, pursuing acquisitions, and exploring private equity and international collaborations - The core investment philosophy is the proprietary "Private Market Value (PMV) with a CatalystTM" approach, rooted in Graham & Dodd principles[27] - Strategic goals include expanding the Investment Partnerships advisory business, pursuing acquisitions and direct investments, launching a private equity business, and establishing partnerships for Asian/European distribution[28][29][30] Competition The alternative asset management industry is highly competitive, with the company facing larger firms and relying on long-term investment performance to attract institutional clients - The company faces intense competition from larger alternative investment firms, insurance companies, banks, and financial institutions with greater resources[32] - Competition is primarily driven by long-term investment performance records, often requiring a successful track record of five years or more for institutional investors[33] Regulation The company's operations are extensively regulated in the U.S. and Europe, imposing significant compliance, disclosure, and operational requirements to protect investors - The company and its subsidiary GCIA are subject to extensive U.S. federal regulation by the SEC under the Advisers Act, imposing fiduciary duties and disclosure obligations[36][37] - International operations are impacted by tax compliance acts such as FATCA and the OECD's Common Reporting Standard (CRS), adding significant administrative burdens[39][40][41] - European activities are regulated by AIFMD and MiFID II, imposing additional compliance, disclosure, and capital requirements while restricting "soft dollars" for research[44][48] Employees As of March 6, 2024, the company had 25 full-time employees across various functions and utilizes services from its former parent, GAMCO - As of March 6, 2024, the company employed 25 full-time staff[52] - The company utilizes services and research analysts from its former parent, GAMCO, under a transitional services agreement[52] Risk Factors As a smaller reporting company, Associated Capital Group is exempt from providing the information required for this item - Smaller reporting companies are not required to provide the information for this item[56] Unresolved Staff Comments The company reports no unresolved staff comments - No unresolved staff comments are reported[56] Cybersecurity The company maintains a comprehensive cybersecurity risk management program, overseen by the Board, and has not experienced any material incidents in the past three years - The company's cybersecurity risk management program encompasses risk assessments, a dedicated security team, training, an incident response plan, and third-party risk management[57] - The Board of Directors oversees cybersecurity threats, with the Chief Technology Officer, possessing over 20 years of experience, leading the cybersecurity team[61] - The company has not experienced any material cybersecurity incidents in the last three years, with related expenses remaining immaterial[58] Part II Properties The company owns office properties in Greenwich, CT, and London, UK, leasing portions to affiliates like GAMCO while also subleasing space from GAMCO Lease Transactions with Affiliates (GAMCO) | Transaction | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Income from leasing properties to affiliates | $360.9 | $426.2 | | Expense for subleasing property from GAMCO | $74.0 | $72.1 | Legal Proceedings The company may face legal and regulatory actions but is unaware of any probable or reasonably possible material losses as of December 31, 2023 - Management is not aware of any probable or reasonably possible losses from legal proceedings as of December 31, 2023[65] Market For The Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities Associated Capital Group's Class A common stock trades on the NYSE, and the company actively repurchased 85,342 shares in Q4 2023, with an additional 350,000 shares authorized for repurchase in February 2024 Class A Common Stock Repurchases (Q4 2023) | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 2023 | 31,201 | $34.95 | | Nov 2023 | 25,477 | $33.84 | | Dec 2023 | 28,664 | $34.60 | | Total | 85,342 | $34.50 | - As of December 31, 2023, 156,664 shares remained available for repurchase, with an additional 350,000 shares authorized by the Board on February 6, 2024[70] Management's Discussion and Analysis (MD&A) In 2023, the company achieved a $37.5 million net income turnaround from a $48.9 million loss in 2022, driven by investment gains and higher interest income, despite a revenue decline and a 13.6% decrease in AUM to $1.59 billion Key Financial Performance | Metric | Full Year 2023 | Full Year 2022 | | :--- | :--- | :--- | | AUM (end of period) | $1,591 million | $1,842 million | | Net Income/(Loss) per Share-diluted | $1.72 | ($2.22) | | Book Value per Share | $42.11 | $40.48 | - The shift from a net loss in 2022 to a net income in 2023 was primarily driven by a significant positive swing in net gain/(loss) from investments and higher interest income[97] - Total AUM decreased by $251 million (13.6%) during 2023, primarily due to $325 million in net investor outflows, partially offset by market appreciation[86] Operating Results (2023 vs. 2022) In 2023, total revenues decreased by 16.7% to $12.7 million, while a $43.0 million net gain from investments and doubled interest income led to a $37.5 million net income, reversing a $48.9 million net loss in 2022 Revenue Breakdown (in thousands) | Revenue Type | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Investment advisory and incentive fees | $12,324 | $14,801 | ($2,477) | (16.7)% | | Other revenues | $359 | $427 | ($68) | (15.9)% | | Total revenues | $12,683 | $15,228 | ($2,545) | (16.7)% | Key Income Statement Items (in millions) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Net Gain/(Loss) from Investments | $43.0 | ($56.5) | | Interest and Dividend Income | $25.3 | $10.7 | | Management Fee Expense | $5.4 | $0.0 | | Net Income/(Loss) | $37.5 | ($48.9) | Liquidity and Capital Resources The company maintains strong liquidity with $317.5 million in cash and equivalents, reporting $145.1 million in net operating cash flow in 2023, a reversal from $70.6 million used in 2022, primarily due to securities adjustments and net income Summary of Cash Flows (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $145,075 | ($70,552) | | Net Cash from Investing Activities | $5,752 | $402 | | Net Cash from Financing Activities | ($25,039) | ($37,175) | | Net Change in Cash | $125,788 | ($107,325) | - Operating cash flow in 2023 was primarily driven by a $125.9 million net decrease in securities (due to rolling investments into short-term treasury bills) and $37.7 million in net income[100] - Financing activities in 2023 included $16.3 million for stock buybacks, $4.4 million for redemptions of noncontrolling interests, and $4.3 million for dividend payments[102] Critical Accounting Policies Critical accounting policies involve significant judgment in revenue recognition, fair value investment valuation, VIE consolidation, equity method accounting for partnerships, and income tax computation - Key critical accounting policies encompass Revenue Recognition, Investments in Securities, Consolidation, Investments in Partnerships and Affiliates, and Income Taxes[104] - Incentive fees are generally recognized at the end of an annual measurement period, while investment advisory fees are recognized as services are performed[105][180][181] - The company consolidates entities where it is determined to be the primary beneficiary, possessing both the power to direct significant activities and the obligation/right to absorb significant losses or benefits[113] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2023 and 2022, including the independent auditor's unqualified opinion and detailed financial statements with accompanying notes - Deloitte & Touche, LLP, the independent auditor, issued an unqualified opinion, affirming the fair presentation of financial position and results of operations in conformity with U.S. GAAP[126] Consolidated Statement of Income Highlights (in thousands) | Description | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenues | $12,683 | $15,228 | | Operating Loss | ($16,947) | ($11,262) | | Net Gain/(Loss) from Investments | $43,033 | ($56,513) | | Net Income/(Loss) Attributable to Shareholders | $37,451 | ($48,907) | | Diluted EPS | $1.72 | ($2.22) | Consolidated Statement of Financial Condition Highlights (in thousands) | Description | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $317,487 | $218,462 | | Total Investments (Securities & Partnerships) | $555,463 | $658,294 | | Total Assets | $943,797 | $927,690 | | Total Liabilities | $30,719 | $27,301 | | Total Equity | $906,975 | $890,196 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, financial components, investment partnerships, fair value measurements, income taxes, related party transactions, and equity structure - In August 2022, the company deconsolidated The PMV Entities, recognizing a $3.6 million loss, after losing control of the Sponsor's manager[155][216] - The company engages in significant related party transactions with its former parent, GAMCO, and other affiliates, including sub-advisory fees, affiliated fund investments, lease agreements, and shared administrative services[247][254][256] - The company maintains a stock award and incentive plan, primarily issuing cash-settled Phantom Restricted Stock Awards (Phantom RSAs), with a $3.5 million liability for outstanding RSAs as of December 31, 2023[261][262] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes in Q4 2023 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[277] - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2023[279] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - This section incorporates information by reference from the Company's 2024 Proxy Statement[283] Executive Compensation Information on executive compensation is incorporated by reference from the 2024 Proxy Statement - This section incorporates information by reference from the Company's 2024 Proxy Statement[286] Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters Information on security ownership is incorporated by reference from the 2024 Proxy Statement - This section incorporates information by reference from the Company's 2024 Proxy Statement[286] Certain Relationships And Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2024 Proxy Statement - This section incorporates information by reference from the Company's 2024 Proxy Statement[286] Principal Accountant Fees And Services Information on principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement - This section incorporates information by reference from the Company's 2024 Proxy Statement[286] Part IV Exhibits, Financial Statement Schedules This section lists all documents filed with the Form 10-K report, including consolidated financial statements and various legal and corporate exhibits - This section lists all documents filed with the report, including financial statements and various legal and corporate exhibits[286]