SECURITIES & 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 June 30, 2020

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

For the transition period from ___ to ___

Commission File No. 001-37387

ASSOCIATED CAPITAL GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware		47-3965991
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

191 Mason Street, Greenwich, CT		06830

(Address of principle executive offices)		(Zip Code)

(203) 629-9595

(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
Class A Common Stock, par value $0.001 per share	AC	New York Stock Exchange

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 ☒ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ 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. (Check one):

Large accelerated filer ☐	Accelerated filer ☒

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 Section13(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 ☒

Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practical date.

Class		Outstanding at July 31, 2020
Class A Common Stock, .001 par value		3,398,829
Class B Common Stock, .001 par value		18,962,918

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

INDEX

PART I.	FINANCIAL INFORMATION	Page

Item 1.	Unaudited Condensed Consolidated Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	32

PART II.	OTHER INFORMATION *

Item 1.	Legal Proceedings	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 6.	Exhibits	34

	Signature	34

* Items other than those listed above have been omitted because they are not applicable.

Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

UNAUDITED

(Dollars in thousands, except per share data)

	June 30, 2020			December 31, 2019
ASSETS
Cash and cash equivalents (a)	$	74,405		$	348,588
Investments in debt securities (a)		319,376			29,037
Investments in equity securities (Including GBL stock with a value of $39.0 million and $57.2 million, respectively) (a)		198,325			271,320
Investments in affiliated registered investment companies		140,146			159,311
Investments in partnerships (a)		139,362			145,372
Receivable from brokers (a)		18,399			24,150
Investment advisory fees receivable		1,167			9,582
Receivable from affiliates		622			4,369
Deferred tax assets (including taxes receivable of $309 in 2020)		11,017			2,004
Goodwill		3,519			3,519
Other assets (a)		20,286			13,654
Total assets	$	926,624		$	1,010,906

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Payable to brokers	$	7,299		$	14,889
Income taxes payable		-			3,676
Compensation payable		6,462			20,246
Securities sold, not yet purchased (a)		9,833			16,419
Payable to affiliates		388			483
Accrued expenses and other liabilities (a)		2,777			7,373
Total liabilities		26,759			63,086

Redeemable noncontrolling interests (a)		47,178			50,385

Equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding		-			-
Class A Common Stock, $0.001 par value; 100,000,000 shares authorized; 6,629,254 and 6,569,254 shares issued, respectively; 3,399,633 and 3,452,381 shares outstanding, respectively		6			6
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 19,196,792 shares issued;
18,962,918 and 19,022,918 shares outstanding, respectively		19			19
Additional paid-in capital		1,003,450			1,003,450
Accumulated deficit		(41,056	)		(701	)
Treasury stock, at cost (3,229,621 and 3,116,873 shares outstanding, respectively)		(110,635	)		(106,342	)
Total Associated Capital Group, Inc. equity		851,784			896,432
Noncontrolling interests		903			1,003
Total equity		852,687			897,435
Total liabilities and equity	$	926,624		$	1,010,906

(a) As of June 30, 2020 and December 31, 2019, cash and cash equivalents, investments in securities, investment in partnerships, receivable from broker, other assets, securities sold, not yet purchased, accrued expenses and other liabilities and redeemable noncontrolling interests include amounts related to consolidated variable interest entities (“VIEs”). See Footnote D.

See accompanying notes.

Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

UNAUDITED

(Dollars in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues
Investment advisory and incentive fees	$	1,859		$	2,713		$	4,559		$	5,446
Institutional research services		1,104			2,076			2,478			3,989
Other		174			32			469			38
Total revenues		3,137			4,821			7,506			9,473
Expenses
Compensation		3,538			5,584			7,731			11,480
Stock-based compensation		447			284			(371	)		699
Other operating expenses		3,295			2,104			5,384			8,321
Total expenses		7,280			7,972			12,744			20,500

Operating loss		(4,143	)		(3,151	)		(5,238	)		(11,027	)
Other income (expense)
Net gain/(loss) from investments		51,714			(234	)		(50,376	)		34,745
Interest and dividend income		1,227			3,295			3,537			7,081
Interest expense		(65	)		(35	)		(114	)		(79	)
Shareholder-designated contribution		2			-			(225	)		-
Total other income (expense), net		52,878			3,026			(47,178	)		41,747
Income/(loss) before income taxes		48,735			(125	)		(52,416	)		30,720
Income tax expense/(benefit)		11,110			(277	)		(12,689	)		5,914
Net income/(loss)		37,625			152			(39,727	)		24,806
Net income/(loss) attributable to noncontrolling interests		2,388			1,084			(1,609	)		2,591
Net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders	$	35,237		$	(932	)	$	(38,118	)	$	22,215

Net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders per share:
Basic	$	1.57		$	(0.04	)	$	(1.70	)	$	0.98
Diluted	$	1.57		$	(0.04	)	$	(1.70	)	$	0.98

Weighted average shares outstanding:
Basic		22,378			22,552			22,410			22,568
Diluted		22,378			22,552			22,410			22,568

Dividends declared:	$	0.10		$	0.10		$	0.10		$	0.10

See accompanying notes.

Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED

(Dollars in thousands)

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020			2019

Net income/(loss)	$	37,625	$	152		$	(39,727	)	$	24,806
Less: Comprehensive income/(loss) attributable to noncontrolling interests		2,388		1,084			(1,609	)		2,591

Comprehensive income/(loss) attributable to Associated Capital Group, Inc.	$	35,237	$	(932	)	$	(38,118	)	$	22,215

See accompanying notes.

Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

UNAUDITED

(Dollars in thousands, except per share data)

For the three months ended March 31, 2020 and three months ended June 30, 2020

	Associated Capital Group, Inc. shareholders
	Common Stock		Accumulated Deficit			Additional Paid-in Capital		Treasury Stock			Noncontrolling Interest			Total			Redeemable Noncontrolling Interests
Balance at December 31, 2019	$	25	$	(701	)	$	1,003,450	$	(106,342	)	$	1,003		$	897,435		$	50,385
Redemptions of noncontrolling interests		-		-			-		-			-			-			(531	)
Net loss		-		(73,355	)		-		-			(52	)		(73,407	)		(3,945	)
Purchase of treasury stock		-		-			-		(3,225	)		-			(3,225	)		-
Balance at March 31, 2020	$	25	$	(74,056	)	$	1,003,450	$	(109,567	)	$	951		$	820,803		$	45,909
Redemptions of noncontrolling interests		-		-			-		-			-			-			-
Net income/(loss)		-		35,237			-		-			(48	)		35,189			(1,167	)
Dividends declared ($0.10 per share)				(2,237	)		-					-			(2,237	)		2,436
Purchase of treasury stock		-		-			-		(1,068	)		-			(1,068	)		-
Balance at June 30, 2020	$	25	$	(41,056	)	$	1,003,450	$	(110,635	)	$	903		$	852,687		$	47,178

See accompanying notes.

Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

UNAUDITED

(Dollars in thousands, except per share data)

For the three months ended March 31, 2019 and three months ended June 30, 2019

	Associated Capital Group, Inc. shareholders
	Common Stock		Accumulated Deficit			Additional Paid-in Capital			Treasury Stock			Total			Redeemable Noncontrolling Interests
Balance at December 31, 2018	$	25	$	(39,889	)	$	1,008,319		$	(102,207	)	$	866,248		$	49,800
Redemptions of noncontrolling interests		-		-			-			-			-			(526	)
Net income		-		23,147			-			-			23,147			1,507
Purchase of treasury stock		-		-			-			(391	)		(391	)		-
Balance at March 31, 2019	$	25	$	(16,742	)	$	1,008,319		$	(102,598	)	$	889,004		$	50,781
Redemptions of noncontrolling interests		-		-			-			-			-			(2,197	)
Net income		-		(932	)		-			-			(932	)		1,084
Dividends declared ($0.10 per share)							(2,254	)					(2,254	)
Purchase of treasury stock		-		-			-			(1,630	)		(1,630	)		-
Balance at June 30, 2019	$	25	$	(17,674	)	$	1,006,065		$	(104,228	)	$	884,188		$	49,668

See accompanying notes.

Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(Dollars in thousands)

	Six Months Ended June 30,
	2020			2019
Operating activities
Net income (loss)	$	(39,727	)	$	24,806
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Equity in net (gains) losses from partnerships		928			(4,064	)
Deferred income taxes		(8,708	)		(3,999	)
Depreciation and amortization		28			12
Donated securities		441			1,758
Unrealized (gains) losses on securities		39,034			(13,901	)
Realized gains (losses) on sales of securities		426			(218	)
(Increase) decrease in assets:
Investments in trading securities		(245,733	)		(48,802	)
Investments in partnerships:
Contributions to partnerships		(4,229	)		(16,671	)
Distributions from partnerships		8,110			1,240
Receivable from affiliates		3,748			683
Receivable from brokers		5,752			466
Investment advisory fees receivable		8,415			3,136
Income taxes receivable		(305	)		-
Other assets		4,424			9,689
Increase (decrease) in liabilities:
Payable to brokers		(7,590	)		3,836
Income taxes payable		(3,676	)		7,718
Payable to affiliates		(95	)		(34	)
Compensation payable		(13,785	)		(1,931	)
Accrued expenses and other liabilities		(2,425	)		196
Total adjustments		(215,240	)		(60,886	)
Net cash used in operating activities	$	(254,967	)	$	(36,080	)

Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED (continued)

(Dollars in thousands)

	Six Months Ended June 30,
	2020			2019
Investing activities
Purchases of securities	$	(226	)	$	(1,024	)
Proceeds from sales of securities		429			2,686
Return of capital on securities		865			732
Purchase of building		(11,084	)		(6,250	)
Net cash used in investing activities		(10,016	)		(3,856	)

Financing activities
Redemptions of redeemable noncontrolling interests		(421	)		(1,590	)
Dividends paid		(4,486	)		(4,513	)
Purchase of treasury stock		(4,293	)		(2,021	)
Proceeds from promissory note from Executive Chairman		-			2,124
Repayment of promissory note to Executive Chairman		-			(2,126	)
Net cash used in financing activities		(9,200	)		(8,126	)
Net decrease in cash and cash equivalents		(274,183	)		(48,062	)
Cash and cash equivalents at beginning of period		348,588			409,564
Increase in cash from consolidation		-			62
Cash and cash equivalents at end of period	$	74,405		$	361,564

Supplemental disclosures of cash flow information:
Cash paid for interest	$	114		$	79
Cash paid for taxes	$	-		$	2,200

Reconciliation to cash, cash equivalents and restricted cash
Cash and cash equivalents	$	74,405		$	361,564
Restricted cash included in receivable from brokers		200			200
Cash, cash equivalents and restricted cash	$	74,605		$	361,764

See accompanying notes.

Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

A. Basis of Presentation and Significant Accounting Policies

Unless we have indicated otherwise, or the context otherwise requires, references in this report to “Associated Capital Group, Inc.,” “AC Group,” “the Company,” “AC,” “we,” “us” and “our” or similar terms are to Associated Capital Group, Inc., its predecessors and its subsidiaries.

Organization

We are a Delaware corporation that provides alternative investment management, institutional research and underwriting services. In addition, we derive investment income/(loss) from proprietary trading of cash and other assets awaiting deployment in our operating business.

We conduct our investment management activities through our wholly-owned subsidiary Gabelli & Company Investment Advisers, Inc. (“GCIA” f/k/a Gabelli Securities, Inc.). GCIA and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli & Partners”), collectively serve as general partners or investment managers to investment funds including limited partnerships and offshore companies (collectively, “Investment Partnerships”), and separate accounts. We primarily manage assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios. The business earns management and incentive fees from its advisory activities. Management fees are largely based on a percentage of assets under management. Incentive fees are based on the percentage of the investment returns of certain clients’ portfolios. GCIA is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended.

We provide our underwriting and institutional research services through G.research, LLC (“G.research”), an indirect majority-owned subsidiary of the Company. G.research is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and is regulated by the Financial Industry Regulatory Authority (“FINRA”).

We may make direct investments in operating businesses using a variety of techniques and structures. We added Gabelli Special Purpose Acquisition Vehicles (“SPAC”) in 2018. Gabelli Value for Italy (VALU), our initial vehicle launched and listed on the Italian Borsa, approached its second anniversary at the apex of the pandemic in Italy. In light of this challenge, the board voted to commence liquidation which was completed on July 8, 2020. The VALU effort successfully canvassed private company opportunities in Italy, with deal flow expanding throughout Europe. We believe the platform is in place to further expand our direct investment efforts across the European continent.

A private company owns 84%of the economics and controls 97% of AC Groups outstanding voting shares.

Associated Capital Group, Inc. Spin-Off

On November 30, 2015, GAMCO Investors, Inc. (“GAMCO” or “GBL”) distributed all the outstanding shares of each class of AC common stock on a pro rata one-for one basis to the holders of each class of GAMCO’s common stock (the “Spin-off”).

Morgan Group Holding Co. Merger and Spin-Off

On October 31, 2019, the Company closed on a transaction whereby Morgan Group Holding Co., (“Morgan Group”) a company that trades in the over the counter market under the symbol “MGHL” and is under common control of AC’s majority shareholder, acquired all of the Company’s interest in G.research for 50,000,000 shares of Morgan Group common stock. In addition, immediately prior to the closing, 5.15 million Morgan Group shares were issued under a private placement for $515,000. Subsequent to the transaction and private placement, the Company has an 83.3% ownership interest in Morgan Group and consolidates the entity, which includes G.research. The transaction has been accounted for pursuant to ASC 805-50, Transactions Between Entities Under Common Control. A common-control transaction is similar to a business combination, however, does not meet the definition of a business combination because there is no change in control over the entity by the parent. Therefore, the accounting and reporting for a transaction between entities under common control is outside the scope of the business combinations guidance in ASC 805-10, ASC 805-20, and ASC 805-30 and is addressed in ASC 805-50. For transactions between entities under common control, there is no change in basis in the net assets received and therefore they are recorded at their historical cost.

Index

On March 16, 2020, the Company announced that its Board of Directors has approved the spin-off of Morgan Group to AC’s shareholders. AC will distribute to its shareholders on a pro rata basis the 50,000,000 shares of Morgan Group that it owns upon close of the spin-off.

On May 5, 2020, the Morgan Group board approved a reverse stock split of the issued and outstanding shares of their common stock, par value $0.01 per share, in a ratio of 1‑for‑100 that was effective on June 10, 2020.

The Board of Directors established the record date of July 30, 2020, and distribution date of August 5, 2020 for the spin-off of Morgan Group to AC’s shareholders.

Based on the distribution ratio, on the distribution date, AC stockholders of record as of 5:00 pm, New York City time, on the record date, received approximately 0.022356 shares of Morgan Group common stock for each share of AC common stock they held on the record date.

Basis of Presentation

The unaudited interim condensed consolidated financial statements of AC Group included herein have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP in the United States for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position, results of operations and cash flows of the Company for the interim periods presented and are not necessarily indicative of a full year’s results.

The interim condensed consolidated financial statements include the accounts of AC Group and its subsidiaries. All material intercompany transactions and balances have been eliminated.

These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

The Company separately presented investments in debt securities and investments in equity securities in the condensed consolidated statement of financial condition as of June 30, 2020. A reclassification was made to conform prior period information as of December 31, 2019 to the current period presentation. This change has also been made to the corresponding notes to condensed consolidated financial statements.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported on the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Recent Accounting Developments

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the guidance in GAAP for the accounting for leases. ASU 2016-02 requires a lessee to recognize assets and liabilities arising from most operating leases in the consolidated statement of financial position. The Company adopted this ASU effective January 1, 2019 with no material impact on its consolidated financial statements.

Index

In June 2016, the FASB issued ASU 2016-13, Accounting for Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), which requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Currently, U.S. GAAP requires an “incurred loss” methodology that delays recognition until it is probable a loss has been incurred. Under ASU 2016-13, the allowance for credit losses must be deducted from the amortized cost of the financial asset to present the net amount expected to be collected. The Statement of Income will reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. In November 2019, the FASB issued ASU 2019-10, which deferred the effective date of this guidance for smaller reporting companies for three years. This guidance is effective for the Company on January 1, 2023 and requires a modified retrospective transition method, which will result in a cumulative-effect adjustment in retained earnings upon adoption. Early adoption is permitted. The Company is currently assessing the potential impact of this new guidance on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other, to simplify the process used to test for impairment of goodwill. Under the new standard, an impairment loss must be recognized in an amount equal to the excess of the carrying amount of a reporting unit over its fair value, limited to the total amount of goodwill allocated to that reporting unit. As a smaller reporting company pursuant to ASU 2019-10, the ASU is effective for the Company on January 1, 2023. This guidance will be effective for the Company on January 1, 2023 using a prospective transition method and early adoption is permitted. The Company is currently evaluating the potential effect of this new guidance on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU adds certain disclosure requirements and modifies or eliminates requirements under current GAAP. This ASU is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company has early adopted the eliminated and modified disclosure requirements effective January 1, 2019.

B. Revenue

The Company’s revenue is accounted for as contracts with customers, and the timing of revenue recognition is based on the Company’s analysis of the provisions of each respective contract. Depending upon the specific terms, revenue may be recognized over time or at a point in time. Modifications to contracts may affect the timing of the satisfaction of performance obligations, the determination of the transaction price, and the allocation of the price to performance obligations, any of which may impact the timing of the recognition of the related revenue.

The Company’s major revenue sources are as follows:

Investment advisory and incentive fees. The Company and its subsidiaries act as general partner, investment manager or sub-advisor to investment funds and/or separately managed accounts of institutional investors (e.g., corporate pension plans). The fees that are paid to the Company are set forth in the offering documents for the investment fund or the separately managed account agreement. Investment advisory and incentive fee revenue consists of:

Asset-based advisory fees – The Company receives a management fee, payable monthly in advance based on value of the net assets of the client. It is generally set at a rate of 1%-1.5% per annum. Asset-based management fee revenue is recognized only as the services are performed over the period.

Performance-based advisory fees – Certain client contracts call for additional fees and or allocations of income tied to a certain percentage, generally 20%, of the investment performance of the account over a measurement period, typically the calendar year. In addition, the contracts provide that performance-based fees or allocations become fixed in the event of an investor redemption prior to the end of the measurement period. In the event that an account suffers a loss in one period, it must be recovered before incentive fees are earned by the Company; this is commonly referred to as a “high water mark” provision. While the Company’s performance obligation is satisfied over time, the Company does not recognize performance-based fees until the end of the measurement period or the time of the investor redemption when the uncertainty surrounding the amount of the variable consideration is resolved.

Index

Sub-advisory fees – Pursuant to agreements with other investment advisors, the Company receives a percentage of advisory fees received by such advisors from certain of their investment fund clients. These fees may be either asset- or performance-based. In addition, they may be subject to reduction by certain expenses as set forth in the respective agreements. Sub-advisory fee revenue which is asset-based is recognized ratably as the services are performed over the relevant contractual performance period. Sub-advisory fee revenue which is performance-based is recognized only when it becomes fixed and not subject to adjustment.

Institutional Research Services. Morgan Group, through G.research, generates institutional research services revenues via hard dollar payments or through commissions on securities transactions executed on an agency basis on behalf of clients. Clients include institutional investors (e.g., hedge funds and asset managers) as well as affiliated mutual funds and managed accounts. A significant portion of G.research institutional research services have been provided to GAMCO and its affiliates.

These revenues consist of:

Brokerage Commissions – Acting as agent, G.research buys and sells securities on behalf of its customers. Commissions are charged on the execution of securities transactions made on behalf of client accounts on an agency basis and are based on a rate schedule. G.research recognizes commission revenue when the related securities transactions are executed on trade date. G.research believes that the performance obligation is satisfied on trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon and the risks and rewards of ownership have been transferred to or from the customer. Commissions earned are typically collected from the clearing brokers utilized by G.research on a daily or weekly basis.

Hard dollar payments – G.research provides research services to unrelated parties, for which direct payment is received. G.research may, or may not have contracts for such services. Where a contract for such services is in place, the contractual fee for the period is recognized ratably over the contract period, which is considered the period over which G.research satisfies its performance obligation. For payments where no research contract exists, revenue is not recognized until agreement is reached with the client at which time the performance obligation is considered to have been met and revenue is recognized.

Selling concessions – G.research participates as a member of the selling group of underwritten equity offerings and receives compensation based on the difference between what its clients pay for the securities sold to its institutional clients and what the issuer receives. The terms of the selling concessions are set forth in contracts between G.research and the underwriter. Revenue is recognized on the trade date (the date on which the G.research purchases the securities from the issuer) for the portion G.research is contracted to buy. G.research believes that the trade date is the appropriate point in time to recognize revenue for securities underwriting transactions as there are no significant actions G.research needs to take subsequent to this date, and the issuer obtains the control and benefit of the capital markets offering at this point. Selling concessions earned are typically collected from the clearing brokers utilized by G.research on a daily or weekly basis.

Sales manager fees – G.research participates as sales manager of at-the-market offerings of certain affiliated closed-end funds and receives a tiered percentage of proceeds as stipulated in agreements between G.research, the funds and the funds’ investment adviser. G.research recognizes sales manager fees upon sale of the related closed-end funds. Sales manager fees earned are fixed and typically collected from the clearing brokers utilized by G.research on a daily or weekly basis.

Index

Institutional research revenues are impacted by the perceived value of the research product provided to clients, the volume of securities transactions and the acquisition or loss of new client relationships.

Other. Other revenues include (a) underwriting fees representing gains, losses, and fees, net of syndicate expenses, arising from public equity and debt offerings in which G.research acts as underwriter or agent and are accrued as earned, and (b) other miscellaneous revenues.

Total revenues by type were as follows for the three and six months ended June 30, 2020 and 2019, respectively (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Investment advisory and incentive fees
Asset-based advisory fees	$	1,304	$	1,761	$	3,124	$	3,485
Performance-based advisory fees		-		13		-		26
Sub-advisory fees		555		939		1,435		1,935
		1,859		2,713		4,559		5,446

Institutional research services
Hard dollar payments		101		463		203		950
Commissions		1,003		1,416		1,940		2,842
Selling concessions		-		197		335		197
		1,104		2,076		2,478		3,989

Other
Underwriting fees		-		19		30		19
Miscellaneous		174		13		439		19
		174		32		469		38

Total	$	3,137	$	4,821	$	7,506	$	9,473

Index

C. Investment in Securities

Investments in debt securities at June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

	June 30, 2020				December 31, 2019
	Cost		Fair Value		Cost		Fair Value

Debt - Trading Securities
Government obligations	$	319,323	$	319,376	$	28,428	$	29,037
Total investments in government obligations	$	319,323	$	319,376	$	28,428	$	29,037

Investments in equity securities at June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

	June 30, 2020				December 31, 2019
	Cost		Fair Value		Cost		Fair Value

Equity Securities
Common stocks	$	232,290	$	189,351	$	271,627	$	262,562
Mutual funds		597		1,015		1,207		2,196
Other investments		9,603		7,959		7,847		6,562
Total investments in securities	$	242,490	$	198,325	$	280,681	$	271,320

Securities sold, not yet purchased at June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

	June 30, 2020				December 31, 2019
	Proceeds		Fair Value		Proceeds		Fair Value
Equity securities
Common stocks	$	8,817	$	9,349	$	13,863	$	16,300
Other investments		194		484		13		119
Total securities sold, not yet purchased	$	9,011	$	9,833	$	13,876	$	16,419

Investments in affiliated registered investment companies at June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

	June 30, 2020				December 31, 2019
	Cost		Fair Value		Cost		Fair Value
Equity securities
Closed-end funds	$	75,090	$	82,240	$	75,646	$	99,834
Mutual funds		48,704		57,906		48,348		59,477
Total investments in affiliated registered investment companies	$	123,794	$	140,146	$	123,994	$	159,311

The Company recognizes all equity derivatives as either assets or liabilities measured at fair value and includes them in either investment in securities or securities sold, not yet purchased on the consolidated statements of financial condition. From time to time, the Company and/or consolidated funds will enter into hedging transactions to manage their exposure to foreign currencies and equity prices related to their proprietary investments. At June 30, 2020 and December 31, 2019 we held derivative contracts on 0.5 million and 3.4 million equity shares, respectively, that are included in investments in securities or securities sold, not yet purchased on the consolidated statements of financial condition as shown in the table below. We had one foreign exchange contract outstanding at June 30, 2020 and two at December 31, 2019. Except for the foreign exchange contracts entered into by the Company, these transactions are not designated as hedges for accounting purposes, and changes in fair values of these derivatives are included in net gain/(loss) from investments on the consolidated statements of income and included in investments in securities, securities sold, not yet purchased, or receivable from or payable to brokers on the consolidated statements of financial condition.

Index

The following table identifies the fair values of all derivatives and foreign currency positions held by the Company (in thousands):

	Asset Derivatives					Liability Derivatives
Statement of		Fair Value				Statement of	Fair Value
Financial Condition		June 30,		December 31,		Financial Condition	June 30,		December 31,
Location		2020		2019		Location	2020		2019
Derivatives designated as hedging
instruments under FASB ASC 815-20
Foreign exchange contracts	Receivable from brokers	$	-	$	23	Payable to brokers	$	1,349	$	-


Derivatives not designated as hedging
instruments under FASB ASC 815-20
Equity contracts
Investments in securities		$	574	$	291	Securities sold, not yet purchased	$	484	$	119

Total derivatives		$	574	$	314		$	1,833	$	119

The following table identifies gains and losses of all derivatives held by the Company (in thousands):

Type of Derivative	Income Statement Location	Three Months ended June 30,						Six Months ended June 30,
		2020			2019			2020			2019

Foreign exchange contracts	Net gain/(loss) from investments	$	(39	)	$	(13	)	$	13		$	69
Equity contracts	Net gain/(loss) from investments		257			10			(510	)		(2,012	)

Total		$	219		$	(3	)	$	(497	)	$	(1,943	)

The Company is a party to enforceable master netting arrangements for swaps entered into with major U.S. financial institutions as part of its investment strategy. They are typically not used as hedging instruments. These swaps, while settled on a net basis with the counterparties, are shown gross in assets and liabilities on the consolidated statements of financial condition. The swaps have a firm contract end date and are closed out and settled when each contract expires.

							Gross Amounts Not Offset in the Statements of Financial Condition
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statements of Financial Condition		Net Amounts of Assets Presented in the Statements of Financial Condition		Financial Instruments			Cash Collateral Received		Net Amount
Swaps:	(In thousands)
June 30, 2020	$	574	$	-	$	574	$	(484	)	$	-	$	90
December 31, 2019		291		-		291		(119	)		-		172

							Gross Amounts Not Offset in the Statements of Financial Condition
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statements of Financial Condition		Net Amounts of Liabilities Presented in the Statements of Financial Condition		Financial Instruments			Cash Collateral Pledged		Net Amount
Swaps:	(In thousands)
June 30, 2020	$	484	$	-	$	484	$	(484	)	$	-	$	-
December 31, 2019		119		-		119		(119	)		-		-

Index

D. Investment Partnerships and Variable Interest Entities

The Company is general partner or co-general partner of various affiliated entities in which the Company had investments totaling $118.8 million and $124.8 million at June 30, 2020 and December 31, 2019, respectively, and whose underlying assets consist primarily of marketable securities (“Affiliated Entities). We also had investments in unaffiliated partnerships, offshore funds and other entities of $20.6 million and $20.5 million at June 30, 2020 and December 31, 2019, respectively (“Unaffiliated Entities”). We evaluate each entity to determine its appropriate accounting treatment and disclosure. Certain of the Affiliated Entities, and none of the Unaffiliated Entities, are consolidated.

The value of entities where consolidation is not deemed appropriate consist of equity method investments which are included in investments in partnerships on consolidated statements of financial condition. This caption includes investments in Affiliated Entities and Unaffiliated Entities which the Company accounts for under the equity method of accounting. The Company reflects the equity in earnings of these Affiliated Entities and Unaffiliated Entities as net gain/(loss) from investments on the consolidated statements of income.

Index

The following table includes the net impact by line item on the condensed consolidated statements of financial condition for the consolidated entities (in thousands):

	June 30, 2020
	Prior to Consolidation		Consolidated Entities			As Reported
Assets
Cash and cash equivalents	$	52,396	$	22,009		$	74,405
Investments in debt securities		299,880		19,496			319,376
Investments in equity securities (including GBL stock)		132,395		65,930			198,325
Investments in affiliated investment companies		179,602		(39,456	)		140,146
Investments in partnerships		159,905		(20,543	)		139,362
Receivable from brokers		7,205		11,194			18,399
Investment advisory fees receivable