# Victory Capital Holdings, Inc.: Form 10-K for the period ended Dec 31, 2019

- Company: [Victory Capital Holdings, Inc.](/companies/vctr.md) (CIK 1570827)
- Form: 10-K
- Filed: 2020-03-13
- Accepted by EDGAR: Mar 13, 2020, 08:48 ET
- Period: 2019-12-31
- Accession: 0001564590-20-010652
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1570827/000156459020010652/vctr-10k_20191231.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1570827/000156459020010652/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 12 months, 2019-01-01 to 2019-12-31 | $612.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2019-10-01 to 2019-12-31 | $64.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 12 months, 2019-01-01 to 2019-12-31 | $164.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 12 months, 2019-01-01 to 2019-12-31 | $28.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-10-01 to 2019-12-31 | $37.6m | us-gaap:NetIncomeLoss |
| Net income | 12 months, 2019-01-01 to 2019-12-31 | $92.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-10-01 to 2019-12-31 | $0.51 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 12 months, 2019-01-01 to 2019-12-31 | $1.26 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-10-01 to 2019-12-31 | $0.56 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 12 months, 2019-01-01 to 2019-12-31 | $1.37 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 12 months, 2019-01-01 to 2019-12-31 | 73,466,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 12 months, 2019-01-01 to 2019-12-31 | $227.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 12 months, 2019-01-01 to 2019-12-31 | $5.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 12 months, 2019-01-01 to 2019-12-31 | $7.4m | us-gaap:PaymentsOfDividends |
| Share repurchases | 12 months, 2019-01-01 to 2019-12-31 | $15.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2019-12-31 | $37.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2019-12-31 | $1.75bn | us-gaap:Assets |
| Total liabilities | at 2019-12-31 | $1.22bn | us-gaap:Liabilities |
| Long-term debt | at 2019-12-31 | $924.5m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2019-12-31 | $537.9m | us-gaap:StockholdersEquity |

## Business

As filed, 63,661 characters.

**Overview –** We are a diversified global asset management firm with $151.8 billion in assets under management (“AUM”) as of December 31, 2019. The Company operates a next-generation business model combining boutique investment qualities with the benefits of a fully integrated, centralized operating and distribution platform.

Victory Capital provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors. With nine autonomous Investment Franchises and a Solutions Platform, Victory Capital offers a wide array of investment styles and investment vehicles including, actively managed mutual funds, separately managed accounts, rules-based and active exchange traded funds (“ETFs”), multi-asset class strategies, custom-designed solutions and a 529 College Savings Plan. As of December 31, 2019, our Franchises and our Solutions Platform collectively managed a diversified set of 116 investment strategies for a wide range of institutional and retail clients and direct members.

Our design logos and the marks “Victory Capital,” “Victory Capital Management,” “Victory Capital Advisers,” “Victory Funds,” “VictoryShares,” “CEMP,” “CEMP Volatility Weighted Indexes,” “INCORE Capital Management,” “Integrity,” “Integrity Asset Management,” “Munder,” “Munder Capital Management,” “The Munder Funds,” “NewBridge,” “NewBridge Asset Management,” “RS Funds,” “RS Investments,” “Sophus Capital,” “Sycamore Capital,” “Trivalent Investments,” “USAA Investments” and “USAA Mutual Funds” are owned or licensed for a period of time by us or one of our subsidiaries. All other trademarks, service marks and trade names appearing in this report are the property of their respective owners.

**Franchises –** Our Franchises are operationally integrated but are separately branded and make investment decisions independently from one another within guidelines established by their respective investment mandates that we monitor. Our integrated model creates a supportive environment in which our investment professionals, for the most part unencumbered by administrative and operational responsibilities, can focus on their pursuit of investment excellence. Victory Capital Management Inc. (“VCM”), is a single registered investment advisor (“RIA”), employs all of our U.S. investment professionals across our Franchises, which are not separate legal entities.

**Solutions –** Our Solutions Platform consists of multi‑Franchise and customized solutions strategies that are primarily rules‑based. We offer our Solutions Platform through a variety of vehicles, including separate accounts, mutual funds and VictoryShares which is our ETF brand. Like our Franchises, our Solutions Platform is operationally integrated and supported by our centralized distribution, marketing and operational support functions.

Our centralized key functions include distribution, marketing, trading, middle‑ and back‑office administration, technology, legal, human resources, compliance and finance. Our integrated model aims to “centralize, not standardize”. We believe by providing our Franchises with control over their selection of, and everyday use of, portfolio management tools, risk analytics and other investment‑related functions, we can minimize disruptions to their investment process and ensure that they are able to invest in the fashion that they find most optimal.

**Business Attributes –** In addition to our integrated business model, we believe there are four main attributes that differentiate us from other publicly traded investment management firms;

1\) We have constructed a set of distinct investment approaches to generate alpha over a full market cycle through security selection and portfolio construction. We believe our strategies and our approach will drive our future growth.

2\) We have a track record of successfully sourcing, executing and integrating strategic acquisitions and making these acquisitions financially attractive by integrating the acquired entity onto our centralized operating platform. In addition, we have been able to expand the distribution for the products of the acquired entities through our centralized distribution platform.

3\) We have a diversified business that offers a suite of active products and hybrid rules‑based products across a wide range of asset classes and distinct investment approaches, to a broad and diverse group of institutional, retail intermediary and direct clients. We offer our 116 investment strategies through nine Franchises and our Solutions Platform, with no Franchise accounting for more than 28% of total AUM as of December 31, 2019. Each of our Franchises employs a different investment approach, which we believe leads to diversification in investment return streams among Franchises, even when asset classes overlap. These factors also mitigate key man risk.

4\) We foster a culture that encourages long‑term thinking through promoting meaningful employee ownership. We have a high degree of employee ownership, with approximately 87% of our employees beneficially owning approximately 23% of our shares as of December 31, 2019. Many of such employees have purchased their equity interests in our firm. In addition, as of December 31, 2019 our current and former employees have collectively invested $182 million in products we manage, directly aligning their investment outcomes with those of our clients.

**USAA AMCO Acquisition –** Victory’s transformative acquisition of the USAA Mutual Fund Business increased AUM by $81.1 billion and significantly impacted our financial results for the six and twelve months ended December 31, 2019. The acquisition not only increased assets under management and revenue, but also introduced additional personnel expenses and new and additional operating expenses such as third party distribution costs, expenses related to a transfer services agreement with USAA, 529 College Savings Plan, and direct member channel expenses that the Company did not incur prior to the acquisition. In conjunction with the USAA AMCO Acquisition, the Company entered into a credit agreement (the “2019 Credit Agreement”), dated July 1, 2019, and obtained a seven-year term loan in an aggregate principal amount of $1.1 billion. All indebtedness outstanding under the Company’s previous credit agreement was repaid and terminated as of July 1, 2019.

The USAA AMCO Acquisition expanded and diversified our investment platform, particularly in the fixed income and solutions asset classes, and increased our size and scale. Additional products added to our investments platform include target date and target risk strategies, managed volatility mutual funds, active fixed income ETFs, sub-advised and multi-manager equity funds. We have also added to our lineup of asset allocation portfolios and smart beta equity ETFs. Through the acquisition, the Company has the rights to offer products and services using the USAA brand for a certain period of time and the opportunity to offer its products to USAA members through a direct member channel. In addition, we have entered into a referral agreement with USAA for members that are interested in investing in USAA Funds or USAA 529 College Savings Plan.

Total consideration for the USAA AMCO Acquisition was $950.1 million, comprising of $851.3 million of cash paid at closing and $98.8 million as the estimated fair value of contingent consideration as of the acquisition date. A maximum of $150.0 million ($37.5 million per year) in contingent payments is payable to sellers based on the annual revenue of USAA Adviser attributable to all “non-managed money”-related AUM in each of the first four years following the closing date. As of December 31, 2019, the estimated fair value of the contingent consideration was $118.7 million. Refer to Note 4, Acquisitions, to the audited consolidated financial statements for further discussion on the USAA AMCO Acquisition, as well as Note 11, Debt, for further discussion on the 2019 Credit Agreement.

**Acquisition Strategy –** Since our management‑led buyout with Crestview Partners II GP, L.P. (“Crestview GP”) from KeyCorp in August 2013, we have completed four acquisitions and grown our AUM from $17.9 billion to $151.8 billion as of December 31, 2019. We regularly evaluate potential acquisition candidates and maintain a strong network of industry participants and advisors that provide opportunities to establish potential target relationships and source transactions. Our management leads and participates in our acquisition strategy, leveraging their many years of experience actively operating our Company on a day‑to‑day basis towards successfully sourcing, executing and integrating acquisitions. We continue to seek to make strategic acquisitions that will add high quality investment teams, that enhance our growth and financial profile, improve our diversification by asset class and investment strategy, achieve our integration and synergy expectations, expand our distribution capabilities, optimize our operating platform, and advance our technology resources.

We believe, based on our successful acquisition track record, that there is a significant opportunity for us to grow through additional acquisitions. We believe the universe of potential acquisition targets has grown as a result of the evolution of the industry.

Through our acquisitions to date, we have added Franchises we believe can outperform the market, and where we have a strong understanding of the core business’s ability to drive growth for those Franchises and our Company as a whole. We believe our deliberate repositioning of our business through acquisitions has equipped us with more compelling investment strategies in more competitive asset classes, providing us with a next generation investment management platform. We continually evaluate and make investments to improve our operating platform. For example, in 2017 we acquired a minority interest in Cerebellum Capital LLC (“Cerebellum”), an investment management firm specializing in machine learning. During 2019, we divested this investment, realizing a gain and retained rights to utilize the technology on our platform.

We offer our clients an array of equity, fixed income and solutions strategies that encompass a diverse spectrum of market capitalization segments, investment styles and approaches. We believe that these strategies are positioned to attract positive net flows and maintain stable fee rates over the long term.

As outlined below, our business is diversified on multiple fronts, including by asset class, Franchise and Solutions Platform, and investment vehicle.

Data as of December 31, 2019.

Within individual asset classes, our Franchises employ different investment approaches. This diversification reduces the correlation between return streams generated by multiple Franchises investing within the same asset class. For example, we have two Franchises (Trivalent and Sophus) focused on Emerging Markets within global/non‑U.S. equity, each with a different investment approach. Trivalent’s investment team primarily focuses on quantitative analysis for stock selection. Sophus employs a front‑end quantitative screen balanced to first rank stocks, then further applies fundamental research to make investment decisions. Due to the differences in investment approaches, each Franchise has a different return profile for investors in different market environments while having exposure to their desired asset classes.

Our multi‑channel distribution capabilities provide another degree of diversification, with approximately 49% of our AUM from the direct member channel clients, 26% institutional clients and 25% from retail clients as of December 31, 2019. Within these channels, clients are further diversified among intermediary (broker dealer and RIAs) platforms, sub advisory relationships, corporate and public entities, insurance companies, 529 college saving plan participants, Taft-Hartley plans, endowments and family offices. We believe this broad diversification of customers has a stabilizing effect on revenue, as various types of investors have unique demand patterns and respond differently to trends and market cycles.

We believe we have created a strong alignment of interests with clients and shareholders through employee ownership, our Franchise revenue share structure and employee investments in Victory products. Notably, a significant number of our employee shareholders acquired their equity in connection with the management‑led buyout with Crestview GP from KeyCorp, as well as in connection with the USAA AMCO Acquisition, RS Acquisition and the Munder Acquisition. We believe the opportunity to own equity in a well‑diversified investment management company is attractive, both to existing employees and those who join as part of acquisitions. We principally compensate our investment professionals through a revenue share program, which we believe further incentivizes our investment professionals to focus on investment performance, while simultaneously minimizing potential distractions from the expense allocation process that would be involved in a profit‑sharing program. We believe the combination of these mechanisms has promoted long‑term thinking, an enhanced client experience and ultimately the creation of value for our shareholders.

Our senior management team, Franchies’ Chief Investment Officers (the “CIOs”) and sales leaders are highly experienced in the industry, each bringing significant expertise to his or her role, having tenures on average of 20 years or more.

**Competitive Strengths –** We believe we have significant competitive strengths that position us for sustained growth over the long term.

*Integrated Model Providing Investment Boutique Autonomy, Centralized Distribution, Marketing and Support Functions to Investment Franchises –* We believe our integrated model allows us to achieve the benefits from both the scale of large managers and the focus of boutique managers. Our Franchises retain investment autonomy while benefiting from our centralized middle‑ and back‑office functions. We have demonstrated an ability to integrate our Franchises onto our flexible infrastructure without significantly increasing incremental fixed costs, which is a key component to the scalability of our model. Our structure enables our Franchises to focus their efforts on the investment process, providing them the platform to enhance their investment performance and consequently their growth prospects. Our centralized operations allow our Franchises to customize their desired investment support functions in ways that are best suited for their investment workflow. Through our centralized distribution platform, our Franchises are able to efficiently sell their products to institutional investors, retirement plans, brokerages, wealth managers and direct clients, which can be challenging for smaller managers to gain access.

Within our model, each Franchise retains its own brand and logo, which it has built over time. Unlike other models with unified branding, there is no requirement for newly acquired Franchises to adjust their product set due to pre‑existing products on our platform; they are marketed under their own brand as they were previously. Because of this dynamic, we have the flexibility to add new Franchises either to gain greater exposure to certain asset classes or increase capacity in places where we already have exposure.

*Proven Acquirer with Compelling Proposition –* We believe our platform will allow us to continue to be a strategic acquirer within the investment management industry, providing us with an opportunity to further grow and scale our business. Through several transactions, we have demonstrated an ability to successfully source, execute and integrate new Franchises.

We believe our integrated model is compelling for potential acquisition prospects. Under our model, Franchises retain the brands they have built as well as autonomy over their investment decisions, while simultaneously benefiting from the ability to leverage our centralized distribution, marketing and operations platform. Our model further relieves our Franchises of much of their administrative burdens and allows them instead to focus on the investment process, which we believe provides them a platform to enhance their investment performance. By offering a platform on which Franchises can focus on their core competencies, grow their client base faster and participate in a revenue share program, we believe we are providing an attractive proposition. Furthermore, we believe Victory equity is attractive to Franchise investment personnel, as these personnel receive the advantage of sharing in the potential upside of the entirety of our diversified investment management business.

Because we integrate a significant portion of each Franchise’s distribution, operational and administrative functions, we have been able to extract significant expense synergies from our acquisitions, enabling us to create greater value from transactions. For example, in the USAA AMCO Acquisition, which closed on July 1, 2019, we successfully achieved net annual expense synergies of $117 million for the year ended December 31, 2019, which represents approximately 28% of USAA Adviser’s expenses in 2018. We expect to realize an additional $3 million in annual expense synergies during 2020. We incurred $27 million of one‑time expenses in 2019, and expect to incur additional one-time expenses totaling $23 million in 2020, to achieve those synergies.

We will seek to continue to augment our next generation investment management platform by focusing on acquisition candidates that make our investment platform better, that expand our distribution capabilities, that optimize our operating platform and achieve our integration and synergy expectations.

*Portfolio of Investment Strategies with Potential for Outperformance –* In assembling our portfolio of Franchises, we have selected investment managers offering strategies in asset classes where active managers have shown an established track record of outperformance relative to benchmarks through security selection and portfolio construction. We continue to build our platform to address the needs of clients who would like exposure to asset classes that have potential for alpha generation. We find that larger industry trends of flows moving from actively managed strategies to passive ones are not as pronounced in certain of our asset classes.

*Diversified Platform Across Investment Strategies, Franchises and Client Type –* We have strategically built an investment platform that is diversified by investment strategy, Franchise and client type. Within each asset class, Franchises with overlapping investment mandates still contribute to our diversification by pursuing different investment philosophies and/or processes. For example, U.S. mid cap equities, which accounted for approximately 17% of total AUM as of December 31, 2019, consists of four Franchises, each following a different investment strategy. We believe the diversity in investment styles reduces the correlation between the return profiles of strategies within the same asset class, and consequently provides an additional layer of diversification of AUM and revenue stability.

We believe our AUM is well diversified at the Franchise level, with no Franchise accounting for more than 28% of total AUM. Furthermore, we believe our Franchises’ brand independence reduces the impact of each individual Franchise’s performance on clients’ perceptions of the other Franchises. The distribution of AUM by Franchise and the number of Franchises, as well as succession planning, mitigates the level of key man risk typically associated with investment management businesses.

We believe our client base serves as another important diversifying element, as different client segments have shown to have distinct characteristics, including asset class and product preferences, sales and redemptions trends, and exposure to secular trends. We strive to maintain a balance between direct-member, institutional, and retail clients, with 49%, 26% and 25% of our AUM as of December 31, 2019 in each of these channels, respectively. We also have the capability to deliver our strategies in investment vehicles designed to meet the needs and preferences of investors in each channel. These investment vehicles include mutual funds with channel‑specific share classes, institutional separate accounts, separately managed account (“SMA”) products, unified managed account (“UMA”) products, common trust funds (“CTFs”) products and ETFs. If a strategy is currently not offered in the wrapper of choice for a client, we have the infrastructure and ability to create a new investment vehicle, which helps our Franchises further diversify their client bases.

*Attractive Financial Profile –* Our revenues have shown to be recurring in nature, as they are based on the level of client assets we manage. The majority of our strategies are in asset classes that require specialized skill, are in demand and typically command commensurate higher fee rates. With the growth of our Solutions Platform, our average fee rate is likely to decline as that business continues to grow, however, our fee revenue is generated from strategies with differing return profiles, thus diversifying our revenue stream. Moreover, by managing these quantitative strategies on our integrated platform, we can earn higher than our firm-wide average margins on these products.

Because we largely outsource our middle‑ and back‑office functions, as well as technology support, we have relatively minimal capital expenditure requirements. Our integrated platform allows us the ability to make investments that benefit each Franchise and our Solutions Platform. Approximately two‑thirds of our operating expenses are variable in nature, consisting of the incentive compensation pool for employees, sales commissions, third‑party distribution costs, sub‑advising and the fees we pay to certain of our vendors.

We have identified three primary net income growth drivers; (i) we grow our AUM organically through inflows into our strategies and the market appreciation of those strategies; (ii) we have a proven ability to grow strategic and synergistic acquisitions; and (iii) we have constructed a scalable and efficient platform.

*Economic and Structural Alignment of Interests Promotes Ownership Culture –* Through our revenue share compensation model for our Franchises and broad employee ownership, we have structurally aligned our employees’ interests with those of our clients and other shareholders and have created an ownership culture that encourages employees to act in the best interests of clients and our Company shareholders, as well as to think long term. Additionally, our employees invest in products managed by our Franchises and Solutions Platform, providing direct alignment with the interests of our clients.

We directly align the compensation paid to our investment teams with the performance of their respective Franchises by structuring formula‑based revenue sharing on the products they manage. We believe that compensation based on revenue rather than profits encourages investment professionals to focus their attention on investment performance, while encouraging them to provide good client service, focus on client retention and attract new flows. We believe the formula‑based, client‑aligned nature of our revenue sharing fosters a culture of transparency where Franchises understand how and on what terms they are being measured to earn compensation.

We believe the high percentage of employee ownership creates a collective alignment with our success. As of December 31, 2019, our employees beneficially owned approximately 23% of our shares. In addition to being aligned with our financial success through their equity ownership, our current and former employees collectively have invested approximately $182 million in products we manage as of December 31, 2019.

**Our Growth Strategy –** We have a purposeful strategy aimed to achieve continued growth and success for our Company and our Franchises. The growth we pursue is both organic and inorganic. We seek to grow organically by offering our clients strategies that are value-added to their overall portfolios with strong performance track records over the long term. We intend to continue to supplement our growth through disciplined acquisitions. We primarily seek to acquire investment management firms that will add high quality investment teams, that enhance our growth and financial profile, improve our diversification by asset class and investment strategy, achieve our integration expectations, expand our distribution capabilities and optimize our operating platform. One of our key advantages in a competitive sales process is our ability to provide access to new distribution channels. Our centralized distribution and marketing platform drives organic growth at our acquired Franchises both by opening new distribution channels, and penetrating deeper into existing ones, providing them with the support of our sales and marketing professionals while allowing them to focus on investment performance.

*Organic Growth –* A key driver of our growth strategy lies in enhancing the strength of our existing Franchises. We primarily do this by providing them with access to our operations platform, technology, centralized distribution and marketing. Largely unencumbered by the burdens of administrative and operational tasks, our investment professionals can focus on delivering investment excellence and maintaining strong client relationships. We also expect to help our Franchises through fund and share class launches and product development. We believe we are well positioned to help our Franchises grow their product offerings and diversify their client base, with the ability to offer their strategies in multiple investment vehicles to meet clients’ needs.

Our next generation integrated platform provides significant operating leverage to our Franchises and is a key factor in our continued success. As we continue to grow and expand, we will look for ways to invest in our operations, to achieve greater economies of scale and provide better services to our Franchises. We continue to expand our distribution capabilities as well, demonstrated by the USAA AMCO Acquisition. We continually look to the future, and as a result, our infrastructure investments can range from the immediate to the long term.

We believe there is significant growth potential in solutions products. Through our VictoryShares brand, we offer ETFs that seek to improve the risk, return and diversification profile of client portfolios. Our approach furthers our commitment to rules‑based investing and includes single‑ and multi‑factor strategies designed to provide a variety of outcomes, including maximum diversification, dividend income, downside mitigation, minimum volatility, thematic and targeted factor exposure. VictoryShares is designed to provide investors with rules‑based solutions that bridge the gap between the active and passive elements of their portfolios. Since the acquisition of the Compass Efficient Model Portfolios, LLC (the “CEMP Acquisition”) in 2015, our ETF products have grown from less than $200 million in AUM to approximately $5.4 billion in AUM as of December 31, 2019.

**Our Franchises –** As of December 31, 2019, we had our nine Franchises diversified across investment approaches, with no Franchise accounting for more than 28% of total AUM. Our Franchises are independent from one another from an investment perspective, maintain their own separate brands and logos, which they have built over time, and are led by dedicated CIOs. We customize each Franchise’s interactions with our centralized platform.

*INCORE Capital Management –* INCORE Capital Management uses niche and customized fixed income strategies focusing on exploiting structural inefficiencies in the U.S. fixed income markets. INCORE conducts extensive research that includes identifying slower prepayment rates on mortgages, market inefficiencies along particular areas of the yield curve, and proprietary quantitative credit quality modeling. INCORE is based in Birmingham, MI and Brooklyn, OH and managed $6.4 billion in AUM as of December 31, 2019. INCORE’s investment team consists of 12 professionals with an average industry experience of approximately 20 years.

*Integrity Asset Management –* Integrity Asset Management utilizes a dynamic value‑oriented approach to U.S. mid‑ and small‑capitalization companies. Integrity conducts fundamental stock research to find attractive companies that have compelling discounts to the prevailing market conditions. Integrity is based in Rocky River, OH, and managed $5.3 billion in AUM as of December 31, 2019. Integrity’s investment team consists of 12 professionals with an average industry experience of approximately 20 years.

*Munder Capital Management –* Munder Capital Management has an experienced team utilizing a “Growth‑at‑a‑Reasonable‑Price” (GARP) strategy in the U.S. equity markets designed to generate consistently strong performance over a market cycle. Munder performs extensive fundamental research in order to find attractive growth companies that it expects will exceed market expectations. Of the companies with independently determined growth attributes, valuation is applied to find the most inexpensive growth companies. Munder is based in Birmingham, MI, and managed $2.6 billion in AUM as of December 31, 2019. Munder’s investment team consists of nine professionals with an average industry experience of approximately 27 years.

*NewBridge Asset Management –* NewBridge Asset Management applies a high conviction growth‑oriented strategy focusing on U.S. large‑capitalization companies experiencing superior long‑term growth rates with strong management teams. Most of NewBridge’s team has worked together since 1996 doing fundamental research on high growth companies. NewBridge usually holds between 25 and 35 securities. NewBridge is based in New York, NY and managed $1.2 billion in AUM as of December 31, 2019. NewBridge’s investment team consists of six professionals with an average industry experience of approximately 23 years.

*RS Investments –* RS Investments is made up of three distinct investment teams: (i) RS Value, (ii) RS Growth and (iii) RS Global. RS Value and RS Growth apply an original and proprietary fundamental approach to investing in value and growth‑oriented U.S. equity strategies. The RS Value and RS Growth teams conduct hundreds of company research meetings each year. RS Global utilizes a highly disciplined quantitative approach to managing core‑oriented global and international equity strategies. RS Investments is based in San Francisco, CA and managed $12.2 billion in AUM as of December 31, 2019. RS Investments’ three investment teams consist of 19 professionals with an average industry experience of approximately 20 years.

S*ophus Capital –* Sophus Capital utilizes a disciplined quantitative process that accesses market conditions in emerging equity markets and rank orders attractive companies that are further researched from a fundamental basis. Sophus’ team members travel to companies to conduct fundamental research. Sophus is based in Des Moines, IA, with offices in London, Hong Kong and Singapore, and managed $2.0 billion in AUM as of December 31, 2019. Sophus’ investment team consists of 10 professionals with an average industry experience of approximately 18 years.

*Sycamore Capital –* Sycamore Capital applies a quality value‑oriented approach to U.S. mid‑ and small‑ capitalization companies. Sycamore conducts fundamental research to find companies with strong high‑quality balance sheets that are undervalued versus comparable high quality companies. Sycamore is based in Cincinnati, OH and managed $23.7 billion in AUM as of December 31, 2019. Sycamore’s investment team consists of 9 professionals with an average industry experience of approximately 16 years.

*Trivalent Investments –* Trivalent Investments utilizes a disciplined approach to stock selection across large to small companies in the international and emerging markets space. Trivalent’s investment strategy is primarily a proprietary quantitative process that drives stock selection across various countries. Trivalent frequently conducts reviews of stock selection rankings within a portfolio construction and risk management context in order to isolate performance to stock selection. Trivalent is based in Boston, MA, and managed $3.5 billion in AUM as of December 31, 2019. Trivalent’s investment team consists of seven professionals with an average industry experience of approximately 23 years.

*USAA Investments –* USAA Investments joined Victory with the USAA AMCO Acquisition on July 1, 2019. USAA’s investment team utilizes a rigorous process rooted in a team-oriented approach among portfolio managers, research analysts and traders. Their taxable and tax exempt portfolios are built bond by bond using a fundamental, bottoms up and yield-focused analysis. USAA Investments is based in San Antonio, TX and managed $42.6 billion in AUM as of December 31, 2019. USAA’s investment team consists of 34 professionals with an average industry experience of approximately 22 years.

### Solutions Platform

Our Solutions Platform consists of multi‑asset, multi-manager, quantitative, rules-based, factor-based, and customized portfolios. These strategies are designed to achieve specific return characteristics, including thematic- and impact-investing outcomes. We offer our Solutions Platform through a variety of vehicles, including separate accounts, mutual funds, ETFs and active fixed income ETFs under our VictoryShares ETF brand. Like our Franchises, our Solutions Platform is operationally integrated and supported by our centralized distribution, marketing and operational support functions. Our Solutions Platform managed $52.2 billion in AUM as of December 31, 2019. Solutions Platform team consists of 14 professionals with an average industry experience of approximately 16 years.

### Our Products and Investment Performance

As of December 31, 2019, our nine Franchises and Solutions Platform offered 116 investment strategies with the majority consisting of fixed income, U.S. small‑ and mid‑cap equities, global/non‑U.S. equities and solutions. These asset classes collectively comprised 91% of our $151.8 billion of total AUM, and 90% of $140.2 billion of long-term AUM, as of December 31, 2019.

*Product Mix –* Our investment strategies are offered through open‑end mutual funds, SMAs, UMAs, ETFs, CTFs and wrap separate account programs. Our product mix could expand, as we have the ability to add investment vehicles to any strategy that is offered by our Franchises.

Each individual asset class is diversified through the investment strategies of our Franchises, which each employ different investment approaches. Due to the differences in investment approaches, each of our Franchises has different return profiles for investors in different market environments while having exposure to their desired asset classes.

*Investment Performance –* Our Franchises have established a long track record of benchmark‑relative outperformance, including prior to their acquisition by us. As of December 31, 2019, 71% of our strategies by AUM had returns in excess of their respective benchmarks over a ten‑year period, 60% over a five‑year period and 64% over a three‑year period. On an equal‑weighted basis, 66% of our strategies have outperformed their benchmarks over a ten‑year period, 53% over a five‑year period and 51% over a three‑year period. We consider both the AUM‑weighted and equal‑weighted metrics in evaluating our investment performance. The advantage of the AUM‑weighted metric is that it reflects the investment performance of our Company as a whole, indicating whether we tend to outperform our benchmarks for the assets we manage. The disadvantage is that the metric fails to capture the overall effectiveness of our individual investment strategies; it does not capture whether most of our strategies tend to outperform their respective benchmarks. Conversely, the equal‑weighted metric reflects the overall effectiveness of our individual investment strategies, but fails to capture the investment performance of our Company as a whole.

The table below sets forth our 10 largest strategies by AUM as of December 31, 2019 and their average annual total returns compared to their respective benchmark index over the one‑, three‑, five‑ and 10‑year periods ended December 31, 2019. These strategies represented approximately 42% of our total AUM as of December 31, 2019.

| Strategy/Benchmark Index | 1 year | 3 years | 5 years | 10 years |
| --- | ---: | ---: | ---: | ---: |
| Sycamore Mid Cap Value | 29.56% | 11.07% | 11.18% | 13.95% |
| Russell Midcap Value | 27.06% | 8.10% | 7.62% | 12.41% |
| **Excess Return** | **2.50%** | **2.97%** | **3.56%** | **1.54%** |
| Sycamore Small Cap Value | 28.01% | 10.20% | 12.05% | 13.94% |
| Russell 2000 Value | 22.39% | 4.77% | 6.99% | 10.56% |
| **Excess Return** | **5.62%** | **5.43%** | **5.06%** | **3.38%** |
| USAA Income | 11.65% | 5.53% | 4.44% | 5.28% |
| Bloomberg Barclays US Aggregate | 8.72% | 4.03% | 3.05% | 3.75% |
| **Excess Return** | **2.93%** | **1.50%** | **1.39%** | **1.53%** |
| Integrity Small Cap Value Equity | 24.29% | 5.21% | 6.71% | 12.31% |
| Russell 2000 Value | 22.39% | 4.77% | 6.99% | 10.56% |
| **Excess Return** | **1.90%** | **0.44%** | **(0.28)%** | **1.75%** |
| RS Mid Cap Growth | 29.64% | 14.07% | 9.99% | 14.45% |
| Russell Midcap Growth | 35.47% | 17.36% | 11.60% | 14.24% |
| **Excess Return** | **(5.83)%** | **(3.29)%** | **(1.61)%** | **0.21%** |
| RS Small Cap Growth | 39.73% | 21.42% | 13.21% | 16.56% |
| Russell 2000 Growth | 28.48% | 12.49% | 9.34% | 13.01% |
| **Excess Return** | **11.25%** | **8.93%** | **3.87%** | **3.55%** |
| USAA Intermediate-Term Bond | 11.73% | 5.86% | 4.60% | 6.40% |
| Bloomberg Barclays US Aggregate | 8.72% | 4.03% | 3.05% | 3.75% |
| **Excess Return** | **3.01%** | **1.83%** | **1.55%** | **2.65%** |
| USAA Tax Exempt Intermediate-Term | 7.55% | 5.17% | 3.72% | 4.75% |
| Bloomberg Barclays Municipal Bond | 7.54% | 4.72% | 3.53% | 4.34% |
| **Excess Return** | **0.01%** | **0.45%** | **0.19%** | **0.41%** |
| USAA S&P Index Member | 31.51% | 15.27% | 11.70% | 13.56% |
| S&P 500 | 31.49% | 15.27% | 11.70% | 13.56% |
| **Excess Return** | **0.02%** | **—%** | **—%** | **—%** |
| USAA International | 24.10% | 11.77% | 7.87% | 7.70% |
| MSCI EAFE | 22.01% | 9.56% | 5.67% | 5.50% |
| **Excess Return** | **2.09%** | **2.21%** | **2.20%** | **2.20%** |

11

Our products have consistently won awards for performance with six consecutive years of ranking in Barron’s 25 Top Fund Families ratings, coming in 7th for the five-year period ended December 31, 2019, 10th for the 10-year period ended December 31, 2019 and 17th overall on a one-year basis for 2019.

In addition, a significant percentage of our mutual fund assets have strong Morningstar ratings. As of December 31, 2019, 44 Victory & USAA Funds and ETFs had four or five star overall ratings. On an AUM‑weighted basis, 68% of our fund AUM had an overall rating of four or five stars by Morningstar. Over a three‑year and five‑year basis, 63% and 64% of our fund AUM achieved four or five star ratings, respectively.

### Integrated Distribution, Marketing and Operations

The centralization of our distribution, marketing and operational functions is a key component in our model, allowing our Franchises to focus on their core competencies of security selection, portfolio construction, and client service. In addition, we believe it provides our Franchises with the benefits of operating at scale, providing them with access to a larger number of clients as well as a more streamlined cost structure. As of December 31, 2019, we had 92 employees in management and support functions, 116 sales and marketing professionals and 150 investment professionals.

Our centralized distribution and marketing functions lead the sales effort for our institutional, retail intermediary, and direct member channels. Our sales teams are staffed with accomplished professionals that are given specific training on how to position each of our strategies. Our distribution teams have historically focused on developing strategic long-term relationships with institutional consultants and retail and retirement intermediaries.

These relationships can enhance our platform’s overall reach and allow our Franchises and Solutions Platform to access more clients. To ensure high levels of client service, our sales teams liaise regularly with product specialists at our Franchises. The specialists are tasked with responding to institutional client and retail inquiries on product performance and also educating prospective investors and retail partners in coordination with the relevant internal sales team members. Our distribution and marketing professionals collaborate closely with our Franchises’ product specialists in order to attract new clients while also servicing and generating additional sales from existing clients.

*Direct Member Channel –* We have a referral agreement in place with USAA to ensure all USAA members (the “Members”) interested in investing directly in a USAA Mutual Fund or the USAA 529 college savings plan, or interacting with us otherwise, are promptly directed to us, either by phone or online. At our direct member channel call center, we have 120 sales and service professionals focused on assisting the Members. They provide Members with account servicing, portfolio reviews, college planning assistance and investment guidance at no cost to the Member. Many of our call center professionals are Financial Industry Regulatory Authority (“FINRA”) licensed and joined us from USAA, so they are familiar with and understand the Members’ investment needs.

*Institutional Sales –* Our institutional sales team attracts and builds relationships with institutional clients, a wide range of institutional consultants and mutual fund complexes and other organizations seeking sub‑advisers. Our institutional clientele includes corporations, public funds, non‑profit organizations, Taft‑Hartley plans, sub‑advisory clients, international clients and insurance companies. Our institutional sales and client‑service professionals manage existing client relationships, serve consultants and prospects and/or focus on specific segments. They have extensive experience and a comprehensive understanding of our investment activities. Each of our client‑facing institutional sales professionals has over 20 years of industry tenure.

*Retail Sales –* Our retail sales team is split among regional external wholesalers, retirement specialists and national account specialists, all of whom are supported by an internal calling desk. In the retail channel, we focus on gathering assets through intermediaries, such as banks, broker‑dealers, wirehouses, retirement platforms and RIA networks. As of December 31, 2019, 67% of our retail AUM was through intermediaries, while 33% was through retirement platforms. We offer mutual funds and separately managed wrap and unified managed accounts on intermediary and retirement platforms. We have agreements with many of the largest platforms in our retail channel, which has provided an opportunity to place our retail products on those platforms. Further, to enhance our presence on large distribution platforms, we have focused our efforts on servicing intermediary home offices and research departments. These efforts have led to strong growth in platform penetration, as measured by investment products on approved and recommended lists, as well as our inclusion in model portfolios. This penetration provides the opportunity for us to sell more products through distribution platforms. We have several products on the research recommended/model portfolios top U.S. intermediary platforms. We also have several products on the recommended list of the top retirement platforms.

*Marketing –* Our distribution efforts are supplemented by our marketing function, which is primarily responsible for enhancing the visibility and quality of our portfolio of brands. They are specifically tasked with managing corporate, Franchise and Solutions Platform branding efforts, database management, the development of marketing materials, website design and the publishing of white papers. They are also a key component in our responses to requests for proposals sent over by prospective clients.

*Operations –* Our centralized operations functions provide our Franchises and Solutions Platform with the support they need so that they can focus on their investment processes. Our centralized operations functions include trading platforms, risk and compliance, middle‑ and back‑office support, technology, finance, human resources, accounting and legal. Although our operations are centralized, we do allow our Franchises a degree of customization with respect to their desired investment support functions, which we believe helps them maintain their individualized investment processes and minimize undue disruptions.

We outsource certain middle‑ and back‑office activities, such as sub-transfer agent, trade settlement, portfolio analytics, custodian reconciliation, portfolio accounting, corporate action processing, performance calculation and client reporting, to scaled, recognized service providers, who provide their services to us on a variable‑cost basis. Systems and processes are customized as necessary to support our investment processes and operations. We maintain relationships with multiple vendors for the majority of our outsourced functions, which we believe mitigates vendor‑specific risk. We also have information security, business continuity and data privacy programs in place to help mitigate risk.

Outsourcing these functions enables us to grow our AUM, both organically and through acquisitions, without the incremental capital expenditures and working capital that would typically be needed. Under our direction and oversight, our outsourced model enhances our ability to integrate our acquisitions, as we are experienced in working with our vendors to efficiently bring additional Franchises onto our platform in a cost‑efficient manner.

We believe both the scalability of our business and our cost structure, in which approximately two‑thirds of our operating expenses are variable, should drive industry-leading margins and facilitate free cash flow conversion. Additionally, we believe having a majority of our expenses tied to AUM and the number of client accounts provides downside margin protection should there be sustained net outflows or adverse market conditions.

### Competition

We compete in various markets, asset classes and investment vehicles. We sell our investment products, which include separate accounts, mutual funds, wrap accounts, UMAs, CTFs and ETFs, in the traditional institutional segments, intermediary and retirement distribution, and direct client channels. We face competition in attracting and retaining assets from other investment management firms. Additionally, we compete with other acquirers of investment management firms, including independent, fully integrated investment management firms and multi‑boutique businesses, insurance companies, banks, private equity firms and other financial institutions.

We compete with other managers offering similar strategies. Some of these organizations have greater financial resources and capabilities than we are able to offer and have strong performance track records. We compete with other investment management firms for client assets based on the following primary factors: (i) our investment performance track record of delivering alpha; (ii) the specialized nature of our investment strategies; (iii) fees charged; (iv) access to distribution channels; (v) client service; and (vi) our employees’ alignment of interests with investors.

We compete with other potential acquirers of investment management firms primarily on the basis of the following factors: (i) the strength of our distribution relationships; (ii) the value we add through centralized distribution, marketing and operations platforms; (iii) the investment autonomy Franchises retain post acquisition; (iv) the tenure and continuity of our management and investment professionals; and (v) the value that can be delivered to the seller through realization of synergies created by the combination of the businesses.

Our ability to continue to compete effectively will also depend upon our ability to retain our current investment professionals and employees and to attract highly qualified new investment professionals and employees. For additional information concerning the competitive risks that we face, refer to “Risk Factors—Risks Related to Our Industry—The investment management industry is intensely competitive.”

### Employees

As of December 31, 2019, we had 358 employees. We are not subject to any collective bargaining agreement and have never been subject to a work stoppage. We believe we have maintained satisfactory relationships with our employees.

### Business Organization

Victory Capital Holdings, Inc. was formed in 2013 for the purpose of acquiring VCM and Victory Capital Advisers (“VCA”) from KeyCorp. VCM is a registered investment adviser managing assets through open-end mutual funds, separately managed accounts, unified management accounts, ETFs, collective trust funds, wrap separate account programs and UCITs. VCM also provides mutual fund administrative services for the Victory Portfolios, Victory Variable Insurance Funds and the mutual fund series of the Victory Portfolios II (collectively, the “Victory Funds”), a family of open-end mutual funds, the VictoryShares (the Company’s ETF brand), as well as the USAA Mutual Fund Business, which includes the USAA Mutual Fund Trust, a family of open-end mutual funds (the “USAA Funds”). Additionally, VCM employs all of the Company’s United States investment professionals across its Franchises and Solutions, which are not separate legal entities. VCM’s three wholly-owned subsidiaries include RS Investment Management (Singapore) Pte. Ltd., RS Investments (Hong Kong) Limited, and RS Investments (UK) Limited. VCA is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds and USAA Funds. VCTA is registered with the SEC as a transfer agent for the USAA Funds.

### Regulatory Environment and Compliance

Our business is subject to extensive regulation in the United States at the federal level and, to a lesser extent, the state level, as well as regulation by self‑regulatory organizations and outside the United States. Under these laws and regulations, agencies that regulate investment advisers have broad administrative powers, including the power to limit, restrict or prohibit an investment adviser from carrying on its business in the event that it fails to comply with such laws and regulations. Possible sanctions that may be imposed include the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser and other registrations, censures and fines.

*SEC Investment Adviser and Investment Company Registration / Regulation –* VCM is registered with the SEC as an investment adviser under the Advisers Act, and the Victory Funds, USAA Funds, VictoryShares and several of the investment companies we sub‑advise are registered under the 1940 Act. The Advisers Act and the 1940 Act, together with the SEC’s regulations and interpretations thereunder, impose substantive and material restrictions and requirements on the operations of advisers and registered funds. The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act and the 1940 Act, ranging from fines and censures to termination of an adviser’s registration. As an investment adviser, we have a fiduciary duty to our clients. The SEC has interpreted that duty to impose standards, requirements and limitations on, among other things: trading for proprietary, personal and client accounts; allocations of investment opportunities among clients; our use of soft dollars; execution of transactions; and recommendations to clients. We manage accounts for all of our clients on a discretionary basis, with authority to buy and sell securities for each portfolio, select broker‑dealers to execute trades and negotiate brokerage commission rates. In connection with certain of these transactions, we receive soft dollar credits from broker‑dealers that have the effect of reducing certain of our expenses. All of our soft dollar arrangements are intended to be within the safe harbor provided by Section 28(e) of the Exchange Act. If our ability to use soft dollars were reduced or eliminated as a result of the implementation of statutory amendments or new regulations, our operating expenses would increase.

As a registered adviser, VCM is subject to many additional requirements that cover, among other things: disclosure of information about our business to clients; maintenance of written policies and procedures; maintenance of extensive books and records; restrictions on the types of fees we may charge; custody of client assets; client privacy; advertising; and solicitation of clients. The SEC has authority to inspect any investment adviser and typically inspects a registered adviser periodically to determine whether the adviser is conducting its activities (i) in accordance with applicable laws, (ii) in a manner that is consistent with disclosures made to clients and (iii) with adequate systems and procedures to ensure compliance.

For the year ended December 31, 2019, 80% of our total revenues were derived from our services to investment companies registered under the 1940 Act—i.e., mutual funds and ETFs. The 1940 Act imposes significant requirements and limitations on a registered fund, including with respect to its capital structure, investments and transactions. While we exercise broad discretion over the day‑to‑day management of the business and affairs of the Victory Funds, USAA Funds, VictoryShares and the investment portfolios of the Victory Funds, USAA Funds, and VictoryShares and the funds we sub‑advise, our own operations are subject to oversight and management by each fund’s board of directors. Under the 1940 Act, a majority of the directors of our registered funds must not be “interested persons” with respect to us (sometimes referred to as the “independent director” requirement) in order to rely on certain exemptive rules under the 1940 Act relevant to the operation of registered funds. The responsibilities of the fund’s board include, among other things: approving our investment advisory agreement with the fund (or, for sub‑advisory arrangements, our sub‑advisory agreement with the fund’s investment adviser); approving other service providers; determining the method of valuing assets; and monitoring transactions involving affiliates. Our investment advisory agreements with these funds may be terminated by the funds on not more than 60 days’ notice and are subject to annual renewal by the fund’s board after the initial term of one to two years. The 1940 Act also imposes on the investment adviser or sub‑adviser to a registered fund a fiduciary duty with respect to the receipt of the adviser’s investment management fees or the sub‑adviser’s sub‑advisory fees. That fiduciary duty may be enforced by the SEC, by administrative action or by litigation by investors in the fund pursuant to a private right of action.

As required by the Advisers Act, our investment advisory agreements may not be assigned without the client’s consent. Under the 1940 Act, investment advisory agreements with registered funds (such as the mutual funds and ETFs we manage) terminate automatically upon assignment. The term “assignment” is broadly defined and includes direct assignments as well as assignments that may be deemed to occur upon the transfer, directly or indirectly, of a “controlling block” of our outstanding voting securities. Refer to “Risk Factors—Risks Related to Our Business—An assignment could result in termination of our investment advisory agreements to manage SEC‑registered funds and could trigger consent requirements in our other investment advisory agreements.”

*SEC Broker‑Dealer Registration / FINRA Regulation –* VCA is subject to regulation by the SEC, FINRA and various states. In addition, certain of our employees are registered with FINRA and such states and subject to SEC, state and FINRA regulation. The failure of these companies and/or employees to comply with relevant regulation could have a material adverse effect on our business.

*SEC Transfer Agent Registration* - Victory Capital Transfer Agency, Inc. is a SEC-registered transfer agent. Our registered transfer agent is subject to the 1934 Act and the rules and regulations promulgated thereunder. These laws and regulations generally grant the SEC and other supervisory bodies broad administrative powers to address non-compliance with regulatory requirements. Sanctions that may be imposed for non-compliance with these requirements include the suspension of individual employees, limitations on engaging in certain activities for specified periods of time or for specified types of clients, the revocation of registrations, other censures and significant fines.

*ERISA‑Related Regulation –* We are a fiduciary under Employee Retirement Income Security Act (“ERISA”) with respect to assets that we manage for benefit plan clients subject to ERISA. ERISA, the regulations promulgated thereunder and applicable provisions of the Internal Revenue Code impose certain duties on persons who are fiduciaries under ERISA, prohibit certain transactions involving ERISA plan clients and impose monetary penalties for violations of these prohibitions. The duties under ERISA require, among other obligations, that fiduciaries perform their duties solely in the interests of ERISA plan participants and beneficiaries.

*CFTC Regulation –* VCM is registered with the Commodity Futures Trading Commission (the “CFTC”) as a commodity operator and is a member of the NFA, a self‑regulatory organization for the U.S. derivatives industry. In addition, certain of our employees are registered with the CFTC and members of NFA. Registration with the CFTC and NFA membership subject VCM to regulation by the CFTC and the NFA including, but not limited to, reporting, recordkeeping, disclosure, self‑examination and training requirements. Registration with the CFTC also subjects VCM to periodic on‑site audits. Each of the CFTC and NFA is authorized to institute proceedings and impose sanctions for violations of applicable regulations.

*Non‑U.S. Regulation –* In addition to the extensive regulation to which we are subject in the United States, we are subject to regulation internationally. Our business is also subject to the rules and regulations of the countries in which we market our funds or services and conduct investment activities.

In Singapore, we are subject to, among others, the Securities and Futures Act, or the SFA, the Financial Advisers Act, or the FAA, and the subsidiary legislation promulgated pursuant to these Acts, which are administered by the Monetary Authority of Singapore, or the MAS. We and our employees conducting regulated activities specified in the SFA and/or the FAA are required to be licensed with the MAS. Failure to comply with applicable laws, regulations, codes, directives, notices and guidelines issued by the MAS may result in penalties including fines, censures and the suspension or revocation of licenses granted by the MAS.

In Hong Kong, we are subject to the Securities and Futures Ordinance, or the SFO, and its subsidiary legislation, which governs the securities and futures markets and regulates, among others, offers of investments to the public and provides for the licensing of dealing in securities and investment management activities and intermediaries. This legislation is administered by the Securities and Futures Commission, or the SFC. The SFC is also empowered under the SFO to establish standards for compliance as well as codes and guidelines. We and our employees conducting any of the regulated activities specified in the SFO are required to be licensed with the SFC, and are subject to the rules, codes and guidelines issued by the SFC from time to time. Failure to comply with the applicable laws, regulations, codes and guidelines could result in various sanctions being imposed, including fines, reprimands and the suspension or revocation of the licenses granted by the SFC.

*Compliance –* Our legal and compliance functions consist of 14 professionals as of December 31, 2019. This group is responsible for all legal and regulatory compliance matters, as well as for monitoring adherence to client investment guidelines. Our legal and compliance teams work through a well‑established reporting and communication structure to ensure we have a consistent and holistic program for legal and regulatory compliance. Senior management is also involved at various levels in all of these functions. We cannot assure that our legal and compliance functions will be effective to prevent all losses. Refer to “Item 1A. Risk Factors—Risks Relating to Our Business—If our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses.”

For more information about our regulatory environment, refer to “Risk Factors—Risks Relating to Our Industry—As an investment management firm, we are subject to extensive regulation” and “Risk Factors—Risks Relating to Our Industry—The regulatory environment in which we operate is subject to continual change and regulatory developments designed to increase oversight may materially adversely affect our business.”

### Available Information

We routinely file annual, quarterly and current reports, proxy statements and other information required by the SEC. Our SEC filings are available to the public from the SEC’s public internet site at https://www.sec.gov.

We maintain a public internet site at ir.vcm.com and make available free of charge through this site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers, as well as any amendments to those reports filed or furnished pursuant to the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also post on our website the charters for our board of directors’ Audit Committee, Nominating and Governance Committee and Compensation Committee, as well as our Corporate Governance Guidelines, our Corporate Responsibility Statement, and our Code of Business Conduct and Ethics governing our directors, officers, and employees. The information on our website is not incorporated by reference into this annual report.

## Risk factors

As filed, 115,000 characters.

*The risks described below are not the only ones facing us. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition or results of operations. In such case the trading price of our Class A common stock could decline. This report also contains forward‑looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward‑looking statements as a result of specific factors, including the risks and uncertainties described below.*

### Risks Relating to Our Business

***We earn substantially all of our revenues based on AUM, and any reduction in AUM would reduce our revenues and profitability. AUM fluctuates based on many factors, including investment performance, client withdrawals and difficult market conditions.***

We earn substantially all of our revenues from asset‑based fees from investment management products and services to individuals and institutions. Therefore, if our AUM declines, our fee revenue will decline, which will reduce our profitability as certain of our expenses are fixed. There are several reasons that AUM could decline:

- The performance of our investment strategies is critical to our business, and any real or perceived negative absolute or relative performance could negatively impact the maintenance and growth of AUM. Net flows related to our strategies can be affected by investment performance relative to other competing strategies or to established benchmarks. Our investment strategies are rated, ranked, recommended or assessed by independent third parties, distribution partners, and industry periodicals and services. These assessments may influence the investment decisions of our clients. If the performance or assessment of our strategies is seen as underperforming relative to peers, it could result in an increase in the withdrawal of assets by existing clients and the inability to attract additional commitments from existing and new clients. In addition, certain of our strategies have or may have capacity constraints, as there is a limit to the number of securities available for the strategy to operate effectively. In those instances, we may choose to limit access to those strategies to new or existing investors, such as we have done for two mutual funds managed by the Sycamore Capital Franchise which had an aggregate of $18.1 billion in AUM as of December 31, 2019.
- General domestic and global economic and political conditions can influence AUM. Changes in interest rates, the availability and cost of credit, inflation rates, economic uncertainty, changes in laws, trade barriers, commodity prices, currency exchange rates and controls and national and international political circumstances (including wars, pandemics (such as the Coronavirus), terrorist acts and security operations) and other conditions may impact the equity and credit markets, which may influence our AUM. If the security markets decline or experience volatility, our AUM and our revenues could be negatively impacted. In addition, diminishing investor confidence in the markets and/or adverse market conditions could result in a decrease in investor risk tolerance. Such a decrease could prompt investors to reduce their rate of commitment or to fully withdraw from markets, which could lower our overall AUM.
- Capital and credit markets can experience substantial volatility. The significant volatility in the markets in the recent past has highlighted the interconnection of the global markets and demonstrated how the deteriorating financial condition of one institution may materially adversely impact the performance of other institutions. In the event of extreme circumstances, including economic, political or business crises, such as a widespread systemic failure in the global financial system or failures of firms that have significant obligations as counterparties, we may suffer significant declines in AUM and severe liquidity or valuation issues.
- Changes in interest rates can have adverse effects on our AUM. Increases in interest rates may adversely affect the net asset values of our AUM. Furthermore, increases in interest rates may result in reduced prices in equity markets. Conversely, decreases in interest rates could lead to outflows in fixed income assets that we manage as investors seek higher yields.

Any of these factors could reduce our AUM and revenues and, if our revenues decline without a commensurate reduction in our expenses, would lead to a reduction in our net income.

***We derive substantially all of our revenues from contracts and relationships that may be terminated upon short or no notice.***

We derive substantially all of our revenues from investment advisory and sub‑advisory agreements as well as fund administration and accounting, agreements with the Victory Funds, USAA Funds and VictoryShares and transfer agency agreements with the USAA Funds, all of which are terminable by clients or our funds’ boards upon short notice or no notice.

Our investment advisory agreements with registered funds, which are funds registered under the Investment Company Act of 1940, as amended, or the 1940 Act, including mutual funds and ETFs, are generally terminable by the funds’ boards or a vote of a majority of the funds’ outstanding voting securities on not more than 60 days’ written notice, as required by law. After an initial term (not to exceed two years), each registered fund’s investment advisory agreement must be approved and renewed annually by that fund’s board, including by its independent members. We maintain a long history of renewing these agreements. In addition, all of our separate account clients and certain of the mutual funds that we sub‑advise have the ability to re‑allocate all or any portion of the assets that we manage away from us at any time with little or no notice. When a sub‑adviser terminates its sub‑advisory agreement to manage a fund that we advise there is a risk that investors in the fund could redeem their assets in the fund, which would cause our AUM to decrease. Similarly, our fund administration, accounting, and transfer agency agreements are subject to annual fund board approval.

These investment advisory and other agreements and client relationships may be terminated or not renewed for any number of reasons. The decrease in revenues that could result from the termination of a material client relationship or group of client relationships could have a material adverse effect on our business.

***Investors in certain funds that we advise can redeem their assets from those funds at any time without prior notice.***

Investors in the mutual funds and certain other pooled investment vehicles that we advise or sub‑advise may redeem their assets from those funds at any time on fairly limited or no prior notice, thereby reducing our AUM. These investors may redeem for any number of reasons, including general financial market conditions, the absolute or relative investment performance we have achieved, or their own financial conditions and requirements. In a declining stock market, the pace of redemptions could accelerate. Poor investment performance relative to other funds tends to result in decreased client commitments and increased redemptions. For the year ended December 31, 2019, we generated approximately 83% of our total revenues from mutual funds and other pooled investment vehicles that we advise (including our proprietary mutual funds, or the Victory Funds, USAA Funds, VictoryShares, and other entities for which we are adviser or sub‑adviser). The redemption of assets from those funds could adversely affect our revenues and have a material adverse effect on our earnings.

***If our strategies perform poorly, clients could redeem their assets and we could suffer a decline in our AUM, which would reduce our earnings.***

The performance of our strategies is critical in retaining existing client assets as well as attracting new client assets. If our strategies perform poorly for any reason, our earnings could decline because:

- our existing clients may redeem their assets from our strategies or terminate their relationships with us;
- the Morningstar and Lipper ratings and rankings of mutual funds and ETFs we manage may decline, which may adversely affect the ability of those funds to attract new or retain existing assets; and
- third‑party financial intermediaries, advisors or consultants may remove our investment products from recommended lists due to poor performance or for other reasons, which may lead our existing clients to redeem their assets from our strategies or reduce asset inflows from these third parties or their clients.

Our strategies can perform poorly for a number of reasons, including: general market conditions; investor sentiment about market and economic conditions; investment styles and philosophies; investment decisions; the performance of the companies in which our strategies invest and the currencies in which those investment are made; the fees we charge; the liquidity of securities or instruments in which our strategies invest; and our inability to identify sufficient appropriate investment opportunities for existing and new client assets on a timely basis. In addition, while we seek to deliver long‑term value to our clients, volatility may lead to under‑performance in the short term, which could adversely affect our results of operations.

In addition, when our strategies experience strong results relative to the market, clients’ allocations to our strategies typically increase relative to their other investments and we sometimes experience withdrawals as our clients rebalance their investments to fit their asset allocation preferences despite our strong results.

While clients do not have legal recourse against us solely on the basis of poor investment results, if our strategies perform poorly, we are more likely to become subject to litigation brought by dissatisfied clients. In addition, to the extent clients are successful in claiming that their losses resulted from fraud, negligence, willful misconduct, breach of contract or other similar misconduct, these clients may have remedies against us, the mutual funds and other pooled investment vehicles we advise and/or our investment professionals under various U.S. and non‑U.S. laws.

***The historical returns of our strategies may not be indicative of their future results or of the strategies we may develop in the future.***

The historical returns of our strategies and the ratings and rankings we or the mutual funds and ETFs that we advise have received in the past should not be considered indicative of the future results of these strategies or of any other strategies that we may develop in the future. The investment performance we achieve for our clients varies over time and the variance can be wide. The ratings and rankings we or the mutual funds and ETFs we advise have received are typically revised monthly. Our strategies’ returns have benefited during some periods from investment opportunities and positive economic and market conditions. In other periods, general economic and market conditions have negatively affected investment opportunities and our strategies’ returns. These negative conditions may occur again, and in the future, we may not be able to identify and invest in profitable investment opportunities within our current or future strategies.

New strategies that we launch or acquire in the future may present new and different investment, regulatory, operational, distribution and other risks than those presented by our current strategies. New strategies may invest in instruments with which we have no or limited experience, create portfolios that present new or different risks or have higher performance expectations that are more difficult to meet. Any real or perceived problems with future strategies or vehicles could cause a disproportionate negative impact on our business and reputation.

***We may support our money market funds to maintain their stable net asset values, or other products we manage, which could affect our revenues or operating results.***

Approximately 7.6% of our AUM as of December 31, 2019, consisted of assets in money market funds. Money market funds seek to preserve a stable net asset value. Market conditions could lead to severe liquidity or security pricing issues, which could impact the NAV of money market funds. If the NAV of a money market fund managed by our asset managers were to fall below its stable net asset value, we would likely experience significant redemptions in AUM and reputational harm, which could have a material adverse effect on our revenues or net income. If a money market fund's stable NAV comes under pressure, we may elect, to provide credit, liquidity, or other support to the fund. We may also elect to provide similar or other support, including by providing liquidity to a fund, to other products we manage for any number of reasons. If we elect to provide support, we could incur losses from the support we provide and incur additional costs, including financing costs, in connection with the support. These losses and additional costs could be material and could adversely affect our earnings. In addition, certain proposed regulatory reforms could adversely impact the operating results of our money market funds.

***The phase out of LIBOR may have a negative impact on our funds and may require significant operational work.***

The Financial Conduct Authority (“FCA”), which regulates the administrator of the London Interbank Offered Rate (“LIBOR”) has announced that it will no longer compel panel banks to submit rates for LIBOR after year-end 2021. As a result, sterling LIBOR and certain other indices which are utilized as benchmarks may no longer be published. The expected phase-out of LIBOR could negatively impact our net interest revenue and require significant operational work. Certain securities in our investment portfolio and the floating rate loans that our strategies may hold reference LIBOR as the benchmark rate to determine the applicable interest rate or payment amount. If LIBOR is discontinued after 2021 as expected, there will be uncertainty or differences in the calculation of the applicable interest rate or payment amount depending on the terms of the governing instruments and there will be significant work required to transition using the new benchmark rates and implement necessary changes to our systems. Regulators and industry working groups have suggested alternative reference rates, but global consensus is lacking. This could result in different financial performance for previously booked transactions and may impact our existing transaction data, products, systems, operations, and pricing processes. The transition away from LIBOR may lead to increased volatility and illiquidity in markets that are tied to LIBOR, reduced values of LIBOR-related investments, and reduced effectiveness of hedging strategies. The calculation of interest rates under the replacement benchmarks could also impact our net interest revenue. In addition, LIBOR may perform differently during the phase-out period than in the past which could result in lower interest payments and a reduction in the value of certain securities in our investment portfolio.

***We depend primarily on third parties to market Victory Funds, USAA Funds and VictoryShares.***

Our ability to attract additional assets to manage is highly dependent on our access to third‑party intermediaries. We gain access to investors in the Victory Funds, USAA Funds and VictoryShares primarily through consultants, 401(k) platforms, broker‑dealers, financial advisors and mutual fund platforms through which shares of the funds are sold. We have relationships with certain third‑party intermediaries through which we access clients in multiple distribution channels.

We compensate most of the intermediaries through which we gain access to investors in the Victory Funds and VictoryShares by paying fees, most of which are a percentage of assets invested in the Victory Funds and VictoryShares through that intermediary and with respect to which that intermediary provides shareholder and administrative services. The allocation of such fees between us and the Victory Funds and VictoryShares is determined by the board of the Victory Funds and VictoryShares and the board of the USAA Funds, based on information and a recommendation from us, with the intent of allocating to us all costs attributable to marketing and distribution of (i) shares of the Victory Funds and USAA Funds not otherwise covered by distribution fees paid pursuant to a distribution and service plan adopted in accordance with Rule 12b‑1 under the 1940 Act and (ii) VictoryShares.

In the future, our expenses in connection with those intermediary relationships could increase if the portion of those fees determined to be in connection with marketing and distribution, or otherwise allocated to us, increased. Clients of these intermediaries may not continue to be accessible to us on terms we consider commercially reasonable, or at all. The absence of such access could have a material adverse effect on our results of operations.

We access institutional clients primarily through consultants. Our institutional business is dependent upon referrals from consultants. Many of these consultants review and evaluate our products and our firm from time to time. As of December 31, 2019, 35% of our institutional separate and CTF accounts AUM was acquired through consultants. Poor reviews or evaluations of either a particular strategy or us as an investment management firm may result in client withdrawals or may impair our ability to attract new assets through these consultants.

### Direct investor channel

The direct channel serves existing individual investors who invest in our USAA Funds. Our broker-dealer subsidiary has a distribution team comprised of a dedicated client-facing sales team who recognize the importance of tailoring services to the needs of our individual investors through active management and the concept of suitability of new offerings as well as ensuring that existing products remain suited to the clients to which they are marketed. We provide investment advice and recommendations to investors to aid them in their decision making. Our sales teams’ recommendations may not fulfill regulatory requirements as a result of their failing to collect sufficient information about a customer or failing to understand the customer’s needs or risk tolerances. Risks associated with providing investment advice and recommendations also include those arising from how we disclose and address possible conflicts of interest, inadequate due diligence, inadequate disclosure, human error and fraud. In addition, new regulations, such as the SEC's Regulation Best Interest, will impose heightened conduct standards and requirements when we provide recommendations to retail investors. To the extent that we fail to satisfy regulatory requirements, fail to know our customers, improperly advise our customers, or risks associated with advisory services otherwise materialize, we could be found liable for losses suffered by such customers, or could be subject to regulatory fines, and penalties, any of which could harm our reputation and business.

We may be subject to claims of lack of suitability. If individual investors who invest in the USAA Funds suffer losses on their investment mandates, they may seek compensation from us on the basis of allegations that the USAA Funds were not suitable for such clients or that the fund prospectuses or other marketing materials contained material errors or were misleading. Despite the controls relating to disclosure in fund prospectuses and marketing materials, it is possible that such action may be successful, which in turn could adversely affect the business, financial condition and results of operations. Any claim for lack of suitability may also result in regulatory investigation, censure and/or fine and may damage our reputation.

***The loss of key investment professionals or members of our senior management team could have a material adverse effect on our business.***

We depend on the skills and expertise of our portfolio managers and other investment professionals and our success depends on our ability to retain the key members of our investment teams, who possess substantial experience in investing and have been primarily responsible for the historical investment performance we have achieved.

Because of the tenure and stability of our portfolio managers, our clients may attribute the investment performance we have achieved to these individuals. The departure of a portfolio manager could cause clients to withdraw assets from the strategy, which would reduce our AUM, investment management fees and our net income. The departure of a portfolio manager also could cause consultants and intermediaries to stop recommending a strategy, clients to refrain from allocating additional assets to the strategy or delay such additional assets until a sufficient new track record has been established and could also cause the departure of other portfolio managers or investment professionals. We have instituted succession planning at our Franchises in an attempt to minimize the disruption resulting from these potential changes, but we cannot predict whether such efforts will be successful.

We also rely upon the contributions of our senior management team to establish and implement our business strategy and to manage the future growth of our business. The loss of any of the senior management team could limit our ability to successfully execute our business strategy or adversely affect our ability to retain existing and attract new client assets and related revenues.

Any of our investment or management professionals may resign at any time, join our competitors or form a competing company. Although many of our portfolio managers and each of our named executive officers are subject to post‑employment non‑compete obligations, these non‑competition provisions may not be enforceable or may not be enforceable to their full extent. In addition, we may agree to waive non‑competition provisions or other restrictive covenants applicable to former investment or management professionals in light of the circumstances surrounding their relationship with us. We do not generally carry “key man” insurance that would provide us with proceeds in the event of the death or disability of any of the key members of our investment or management teams.

Competition for qualified investment and management professionals is intense and we may fail to successfully attract and retain qualified personnel in the future. Our ability to attract and retain these personnel will depend heavily on the amount and structure of compensation and opportunities for equity ownership we offer. Any cost‑reduction initiative or adjustments or reductions to compensation or changes to our equity ownership culture could cause instability within our existing investment teams and negatively impact our ability to retain key personnel. In addition, changes to our management structure, corporate culture and corporate governance arrangements could negatively impact our ability to retain key personnel.

***We rely on third parties to provide products or services for the operation of our business, and a failure or inability by such parties to provide these products or services could materially adversely affect our business.***

We have determined, based on an evaluation of various factors, that it is more efficient to use third parties for certain functions and services. As a result, we have contracted with a limited number of third parties to provide critical operational support, such as middle‑ and back‑office functions, information technology services and various fund administration and accounting roles, and the funds contract with third parties in custody, transfer agent and sub transfer agent roles. Our third parties with which we do business may also be sources of cybersecurity or other technological risks. While we engage in certain actions to reduce the exposure, such as collaborating to develop secure transmission capabilities, performing onsite security control assessments and limiting third party access to the least privileged level necessary to perform job functions, our business would be disrupted if key service providers fail or become unable to continue to perform those services or fail to protect against or respond to cyber-attacks, data breaches or other incidents. Moreover, to the extent our third‑party providers increase their pricing, our financial performance will be negatively impacted. In addition, upon termination of a third‑party contract, we may encounter difficulties in replacing the third‑party on favorable terms, transitioning services to another vendor, or in assuming those responsibilities ourselves, which may have a material adverse effect on our business.

***Operational risks may disrupt our business, result in losses or limit our growth.***

We are heavily dependent on the capacity and reliability of the communications, information and technology systems supporting our operations, whether developed, owned and operated by us or by third parties. We also rely on manual workflows and a variety of manual user controls. Operational risks such as trading or other operational errors or interruption of our financial, accounting, trading, compliance and other data processing systems, whether caused by human error, fire, other natural disaster or pandemic, power or telecommunications failure, cyber‑attack or viruses, act of terrorism or war or otherwise, could result in a disruption of our business, liability to clients, regulatory intervention or reputational damage, and thus materially adversely affect our business. The potential for some types of operational risks, including, for example, trading errors, may be increased in periods of increased volatility, which can magnify the cost of an error. Insurance and other safeguards might not be available or might only partially reimburse us for our losses.

Although we have backup systems in place, our backup procedures and capabilities in the event of a failure or interruption may not be adequate. As our client base, number and complexity of strategies and client relationships increase, developing and maintaining our operational systems and infrastructure may become increasingly challenging. We may also suffer losses due to employee negligence, fraud or misconduct. Non‑compliance with policies, employee misconduct, negligence or fraud could result in legal liability, regulatory sanctions and serious reputational or financial harm. In recent years, a number of multinational financial institutions have suffered material losses due to the actions of “rogue traders” or other employees. It is not always possible to deter or detect employee misconduct and the precautions we take to prevent and detect this activity may not always be effective. Employee misconduct could have a material adverse effect on our business.

***The significant growth we have experienced over the past few years may be difficult to sustain and our growth strategy is dependent in part upon our ability to make and successfully integrate new strategic acquisitions.***

Our AUM has increased from $17.9 billion following our 2013 management‑led buyout with Crestview GP from KeyCorp to $151.8 billion as of December 31, 2019, primarily as a result of acquisitions. The absolute measure of our AUM represents a significant rate of growth that may be difficult to sustain. The continued long‑term growth of our business will depend on, among other things, successfully making new acquisitions, retaining key investment professionals, maintaining existing strategies and selectively developing new, value‑added strategies. There is no certainty that we will be able to identify suitable candidates for acquisition at prices and terms we consider attractive, consummate any such acquisition on acceptable terms, have sufficient resources to complete an identified acquisition or that our strategy for pursuing acquisitions will be effective. In addition, any acquisition can involve a number of risks, including the existence of known, unknown or contingent liabilities. An acquisition may impose additional demands on our staff that could strain our operational resources and require expenditure of substantial legal, investment banking and accounting fees. We may be required to issue additional shares of common stock or spend significant cash to consummate an acquisition, resulting in dilution of ownership or additional debt leverage, or spend additional time and money on facilitating the acquisition that otherwise would be spent on the development and expansion of our existing business.

We may not be able to successfully manage the process of integrating an acquired company’s people and other applicable assets to extract the value and synergies projected to be realized in connection with the acquisition. The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of our combined businesses and the possible loss of key personnel and AUM. The diversion of management’s attention and any delays or difficulties encountered in connection with acquisitions and the integration of an acquired company’s operations could have an adverse effect on our business.

Our business growth will also depend on our success in achieving superior investment performance from our strategies, as well as our ability to maintain and extend our distribution capabilities, to deal with changing market and industry conditions, to maintain adequate financial and business controls and to comply with new legal and regulatory requirements arising in response to both the increased sophistication of the investment management industry and the significant market and economic events of the last decade.

We may not be able to manage our growing business effectively or be able to sustain the level of growth we have achieved historically.

***A significant proportion of our existing AUM is managed in long‑only investments.***

As of December 31, 2019, approximately 67% of our AUM was invested in U.S. and international equity. Under market conditions in which there is a general decline in the value of equity securities, the AUM in each of our equity strategies is likely to decline. Unlike some of our competitors, we do not currently offer strategies that invest in privately held companies or take short positions in equity securities, which could offset some of the poor performance of our long‑only equity strategies under such market conditions. Even if our investment performance remains strong during such market conditions relative to other long‑only equity strategies, investors may choose to withdraw assets from our management or allocate a larger portion of their assets to non‑long‑only or non‑equity strategies. In addition, the prices of equity securities may fluctuate more widely than the prices of other types of securities, making the level of our AUM and related revenues more volatile.

As of December 31, 2019, approximately 28% of our total AUM was concentrated in small‑ and mid‑cap equities. As a result, a substantial portion of our operating results depends upon the performance of those investments, and our ability to retain client assets in those investments. If a significant portion of the investors in such investments decided to withdraw their assets or terminate their investment advisory agreements for any reason, including poor investment performance or adverse market conditions, our revenues from those investments would decline, which would have a material adverse effect on our earnings and financial condition.

As of December 31, 2019, approximately 33% of our total AUM was invested in U.S. taxable and tax-exempt fixed-income and money market securities. While fixed-income is typically considered less volatile than the equity markets, it does exhibit different types of risks such as interest rate risk, credit risk, and over-the-counter liquidity risk. Also, retention of fixed income AUM depends upon the performance of those investments, and our ability to retain client assets in those investments. If a significant portion of the investors in such investments decided to withdraw their assets or terminate their investment advisory agreements for any reason, including poor investment performance or adverse market conditions, our revenues from those investments would decline, which would have a material adverse effect on our earnings and financial condition. Money market securities are about 8% of total AUM and are considered a low risk asset category.

In addition, we have historically derived substantially all of our revenue from clients in the United States. If economic conditions weaken or slow, particularly in the United States, this could have a substantial adverse impact on our results of operations.

***Our efforts to establish and develop new teams and strategies may be unsuccessful and could negatively impact our results of operations and could negatively impact our reputation and culture.***

We seek to add new investment teams that invest in a way that is consistent with our philosophy of offering high value‑added strategies. We also look to offer new strategies managed by our existing teams. We expect the costs associated with establishing a new team and/or strategy initially to exceed the revenues generated, which will likely negatively impact our results of operations. If new strategies, whether managed by a new team or by an existing team, invest in instruments, or present operational issues and risks, with which we have little or no experience, it could strain our resources and increase the likelihood of an error or failure.

In addition, the historical returns of our existing strategies may not be indicative of the investment performance of any new strategy, and the poor performance of any new strategy could negatively impact the reputation of our other strategies.

We may support the development of new strategies by making one or more seed investments using capital that would otherwise be available for our general corporate purposes and acquisitions. Making such a seed investment could expose us to potential capital losses.

***The performance of our strategies or the growth of our AUM may be constrained by unavailability of appropriate investment opportunities.***

The ability of our investment teams to deliver strong investment performance depends in large part on their ability to identify appropriate investment opportunities in which to invest client assets. If the investment team for any of our strategies is unable to identify sufficient appropriate investment opportunities for existing and new client assets on a timely basis, the investment performance of the strategy could be adversely affected. In addition, if we determine that sufficient investment opportunities are not available for a strategy, we may choose to limit the growth of the strategy by limiting the rate at which we accept additional client assets for management under the strategy, closing the strategy to all or substantially all new investors or otherwise taking action to limit the flow of assets into the strategy. If we misjudge the point at which it would be optimal to limit access to or close a strategy, the investment performance of the strategy could be negatively impacted. The risk that sufficient appropriate investment opportunities may be unavailable is influenced by a number of factors, including general market conditions, but is particularly acute with respect to our strategies that focus on small‑ and mid‑cap equities, and is likely to increase as our AUM increases, particularly if these increases occur very rapidly. By limiting the growth of strategies, we may be managing the business in a manner that reduces the total amount of our AUM and our investment management fees over the short term.

***An assignment could result in termination of our investment advisory agreements to manage SEC‑registered funds and could trigger consent requirements in our other investment advisory agreements.***

Under the 1940 Act, each of the investment advisory agreements between registered funds and our subsidiary, VCM, and investment sub‑advisory agreements between the investment adviser to a registered fund and VCM, will terminate automatically in the event of its assignment, as defined in the 1940 Act.

Assignment, as generally defined under the 1940 Act and the Investment Advisers Act of 1940, as amended, or the Advisers Act, includes direct assignments as well as assignments that may be deemed to occur, under certain circumstances, upon the direct or indirect transfer of a “controlling block” of our outstanding voting securities. A transaction is not an assignment under the 1940 Act or the Advisers Act, however, if it does not result in a change of actual control or management of VCM.

Upon the occurrence of such an assignment, VCM could continue to act as adviser or sub‑adviser to any such registered fund only if that fund’s board and shareholders approved a new investment advisory agreement, except in the case of certain of the registered funds that we sub‑advise for which only board approval would be necessary pursuant to a manager‑of‑managers SEC exemptive order. In addition, as required by the Advisers Act, each of the investment advisory agreements for the separate accounts and pooled investment vehicles we manage provides that it may not be assigned, as defined in the Advisers Act, without the consent of the client. If an assignment were to occur, we cannot be certain that we would be able to obtain the necessary approvals from the boards and shareholders of the registered funds we advise or the necessary consents from our separate account or pooled investment vehicle clients.

If an assignment of an investment advisory agreement is deemed to occur, and our clients do not consent to the assignment or enter into a new agreement, our results of operations could be materially and adversely affected.

### Reputational harm could result in a loss of AUM and revenues.

The integrity of our brands and reputation is critical to our ability to attract and retain clients, business partners and employees and maintain relationships with consultants. We operate within the highly regulated financial services industry and various potential scenarios could result in harm to our reputation. They include internal operational failures, failure to follow investment or legal guidelines in the management of accounts, intentional or unintentional misrepresentation of our products and services in offering or advertising materials, public relations information, litigation (whether substantiated or not), social media or other external communications, employee misconduct or investments in businesses or industries that are controversial to certain special interest groups. Any real or perceived conflict between our and our shareholders’ interests and our clients’ interests, as well as any fraudulent activity or other exposure of client assets or information, may harm our reputation. The negative publicity associated with any of these factors could harm our reputation and adversely impact relationships with existing and potential clients, third‑party distributors, consultants and other business partners and subject us to regulatory sanctions or litigation. Damage to our brands or reputation could negatively impact our standing in the industry and result in loss of business in both the short term and the long term.

Additionally, while we have ultimate control over the business activities of our Franchises, they generally have the autonomy to manage their day‑to‑day operations, and if we fail to intervene in potentially serious matters that may arise, our reputation could be damaged and our results of operations could be materially adversely affected.

***Our failure to comply with investment guidelines set by our clients, including the boards of registered funds, and limitations imposed by applicable law, could result in damage awards against us and a loss of AUM, either of which could adversely affect our results of operations or financial condition.***

When clients retain us to manage assets on their behalf, they generally specify certain guidelines regarding investment allocation and strategy that we are required to follow in managing their assets. The boards of registered funds we manage generally establish similar guidelines regarding the investment of assets in those funds. We are also required to invest the registered funds’ assets in accordance with limitations under the 1940 Act and applicable provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Other clients, such as plans subject to the Employee Retirement Income Security Act of 1974, as amended, or ERISA, or non‑U.S. funds, require us to invest their assets in accordance with applicable law. Our failure to comply with any of these guidelines and other limitations could result in losses to clients or investors in a fund which, depending on the circumstances, could result in our obligation to make clients or fund investors whole for such losses. If we believed that the circumstances did not justify a reimbursement, or clients and investors believed the reimbursement we offered was insufficient, they could seek to recover damages from us or could withdraw assets from our management or terminate their investment advisory agreement with us. Any of these events could harm our reputation and materially adversely affect our business.

***If our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses.***

In order to manage the significant risks inherent in our business, we must maintain effective policies, procedures and systems that enable us to identify, monitor and mitigate our exposure to operational, legal and reputational risks, including from the investment autonomy of our Franchises. Our risk management methods may prove to be ineffective due to their design or implementation, or as a result of the lack of adequate, accurate or timely information or otherwise. If our risk management efforts are ineffective, we could suffer losses that could have a material adverse effect on our financial condition or operating results. Additionally, we could be subject to litigation, particularly from our clients or investors, and sanctions or fines from regulators.

Our techniques for managing operational, legal and reputational risks in client portfolios may not fully mitigate the risk exposure in all economic or market environments, including exposure to risks that we might fail to identify or anticipate. Because our clients invest in our strategies in order to gain exposure to the portfolio securities of the respective strategies, we have not adopted corporate‑level risk management policies to manage market, interest rate or exchange rate risks that could affect the value of our overall AUM.

***We provide a broad range of services to the Victory Funds, USAA Funds, VictoryShares and sub‑advised mutual funds which may expose us to liability.***

We provide a broad range of administrative services to the Victory Funds, the USAA Funds and VictoryShares, including providing personnel to the Victory Funds, the USAA Funds and VictoryShares to serve as directors and officers, the preparation or supervision of the preparation of the Victory Funds’, USAA Funds’ and VictoryShares’ regulatory filings, maintenance of board calendars and preparation or supervision of the preparation of board meeting materials, management of compliance and regulatory matters, provision of shareholder services and communications, accounting services, including the supervision of the activities of the Victory Funds’, USAA Funds’ and VictoryShares’ accounting services provider in the calculation of the funds’ net asset values, supervision of the preparation of the Victory Funds’, USAA Funds’ and VictoryShares’ financial statements and coordination of the audits of those financial statements, tax services, including calculation of dividend and distribution amounts and supervision of tax return preparation, supervision of the work of the USAA Funds’, Victory Funds’ and VictoryShares’ other service providers, VCTA acting as transfer agent to the USAA Funds and VCA acting as a distributor for the Victory Funds and USAA Funds. If we make a mistake in the provision of those services, the Victory Funds, USAA Funds or VictoryShares could incur costs for which we might be liable. In addition, if it were determined that the Victory Funds, USAA Funds or VictoryShares failed to comply with applicable regulatory requirements as a result of action or failure to act by our employees, we could be responsible for losses suffered or penalties imposed. In addition, we could have penalties imposed on us, be required to pay fines or be subject to private litigation, any of which could decrease our future income or negatively affect our current business or our future growth prospects. Although less extensive than the range of services we provide to the Victory Funds, USAA Funds’ and VictoryShares, we also provide a limited range of services, in addition to investment management services, to sub‑advised mutual funds.

In addition, we from time to time provide information to the funds for which we act as sub‑adviser (or to a person or entity providing administrative services to such a fund), and to the Undertakings Collective Investment in Transferable Securities (the “UCITS”), for which we act as investment manager (or to the promotor of the UCITS or a person or entity providing administrative services to such a UCITS), which is used by those funds or UCITS in their efforts to comply with various regulatory requirements. If we make a mistake in the provision of those services, the sub‑advised fund or UCITS could incur costs for which we might be liable. In addition, if it were determined that the sub‑advised fund or UCITS failed to comply with applicable regulatory requirements as a result of action or failure to act by our employees, we could be responsible for losses suffered or penalties imposed. In addition, we could have penalties imposed on us, be required to pay fines or be subject to private litigation, any of which could decrease our future income or negatively affect our current business or our future growth prospects.

***Failure to implement effective information and cyber security policies, procedures and capabilities could disrupt operations and cause financial losses.***

We electronically receive, process, store and transmit sensitive information of our clients including personal data, such as without limitation names and addresses, social security numbers, driver's license numbers, such information is necessary to support our clients’ investment transactions. The uninterrupted operation of our information systems, as well as the confidentiality of the customer information that resides on such systems, is critical to our successful operation. Bad actors may attempt to harm us by gaining access to confidential or proprietary client information, often with the intent of stealing from or defrauding us or our clients. In some cases, they seek to disrupt our ability to conduct our business, including by destroying information maintained by us. For that reason, cybersecurity is one of the principal operational risks we face as a provider of financial services and our operations rely on the effectiveness of our information and cyber security policies, procedures and capabilities to provide secure processing, storage and transmission of confidential and other information in our computer systems, software, networks and mobile devices and on the computer systems, software, networks and mobile devices of third parties on which we rely. Although we maintain a system of internal controls designed to provide reasonable assurance that fraudulent activity is either prevented or detected on a timely basis and we take other protective measures and endeavor to modify them as circumstances warrant, our computer systems, software, networks and mobile devices may be vulnerable to cyber‑attacks, sabotage, unauthorized access, computer viruses, worms or other malicious code, and other events that have a security impact. In addition, our interconnectivity with service providers and other third parties may be adversely affected if any of them are subject to a successful cyber-attack or other information security event. While we collaborate with service providers and other third parties to develop secure transmission capabilities and other measures to protect against cyber-attacks, we cannot ensure that we or any third party has all appropriate controls in place to protect the confidentiality of such information.

An externally caused information security incident, such as a hacker attack, virus or worm, or an internally caused issue, such as failure to control access to sensitive systems, could materially interrupt business operations or cause disclosure or modification of sensitive or confidential client or competitive information and could result in material financial loss, loss of competitive position, regulatory actions, breach of clients contracts, reputational harm or legal liability. If one or more of such events occur, it could potentially jeopardize our or our clients’, employees’ or counterparties’ confidential and other information processed and stored in, and transmitted through, our or third‑party computer systems, software, networks and mobile devices, or otherwise cause interruptions or malfunctions in our, our clients’, our counterparties’ or third parties’ operations. As a result, we could experience material financial loss, loss of competitive position, regulatory fines and/or sanctions, breach of client contracts, reputational harm or legal liability, which, in turn, could have an adverse effect on our financial condition and results of operations.

As a provider of financial services, we are bound by the disclosure limitations and if we fail to comply with these regulations and industry security requirements, we could be exposed to damages from legal actions from clients, governmental proceedings, governmental notice requirements, and the imposition of fines or prohibitions on the services we provide. Additionally, some of our client contracts require us to indemnify clients in the event of a cyber breach if our systems do not meet minimum security standards. We may be required to spend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against fully or not fully covered through any insurance that we maintain.

Further, recent well-publicized security breaches at other companies have led to enhanced government and regulatory scrutiny of the measures taken by companies to protect against cyber-attacks and data privacy breaches, and have resulted in heightened security requirements, including additional regulatory expectations for oversight of vendors and service providers. For example, in May 2018, the European Union’s new General Data Protection Regulation became effective, and similar regulations are also being considered in other jurisdictions. If more restrictive privacy laws, rules or industry security requirements are adopted in the future on the Federal or State level, or by a specific industry body, they could have an adverse impact on us through increased costs or business restrictions.

Any inability to prevent security or privacy breaches, or the perception that such breaches may occur, could cause our existing clients to lose confidence in our systems and terminate their agreements with us, inhibit our ability to attract new clients, result in increasing regulation, or bring about other adverse consequences from the government agencies that regulate our business.

***Certain of our strategies invest principally in the securities of non‑U.S. companies, which involve foreign currency exchange, tax, political, social and economic uncertainties and risks.***

As of December 31, 2019, approximately 8% of our total AUM was invested in strategies that primarily invest in securities of non‑U.S. companies and securities denominated in currencies other than the U.S. dollar. Fluctuations in foreign currency exchange rates could negatively affect the returns of our clients who are invested in these securities. In addition, an increase in the value of the U.S. dollar relative to non‑U.S. currencies is likely to result in a decrease in the U.S. dollar value of our AUM, which, in turn, would likely result in lower revenue and profits.

Investments in non‑U.S. issuers may also be affected by tax positions taken in countries or regions in which we are invested as well as political, social and economic uncertainty. Declining tax revenues may cause governments to assert their ability to tax the local gains and/or income of foreign investors (including our clients), which could adversely affect client interests in investing outside their home markets. Many financial markets are not as developed, or as efficient, as the U.S. financial markets, and, as a result, those markets may have limited liquidity and higher price volatility and may lack established regulations. Liquidity may also be adversely affected by political or economic events, government policies, and social or civil unrest within a particular country, and our ability to dispose of an investment may also be adversely affected if we increase the size of our investments in smaller non‑U.S. issuers. Non‑U.S. legal and regulatory environments, including financial accounting standards and practices, may also be different, and there may be less publicly available information about such companies. These risks could adversely affect the performance of our strategies that are invested in securities of non‑U.S. issuers and may be particularly acute in the emerging or less developed markets in which we invest. In addition to our Trivalent and Sophus Franchises, certain of our other Franchises and Solutions Platform invest in emerging or less developed markets.

***The expansion of our business outside of the United States raises tax and regulatory risks, may adversely affect our profit margins and places additional demands on our resources and employees.***

We have expanded and intend to continue to expand our distribution efforts into non‑U.S. markets through partnered distribution efforts and product offerings, including Europe, Japan, Singapore and Hong Kong. For example, we organized and serve as investment manager of one Ireland‑domiciled UCITS, the Victory Sophus Emerging Markets UCITS Fund. Clients outside the United States may be adversely affected by political, social and economic uncertainty in their respective home countries and regions, which could result in a decrease in the net client cash flows that come from such clients. This expansion has required and will continue to require us to incur a number of up‑front expenses, including those associated with obtaining and maintaining regulatory approvals and office space, as well as additional ongoing expenses, including those associated with leases, the employment of additional support staff and regulatory compliance.

Non‑U.S. clients may be less accepting of the U.S. practice of payment for certain research products and services through soft dollars (“soft dollars” are a means of paying brokerage firms for their services through commission revenue, rather than through direct payments) or such practices may not be permissible in certain jurisdictions, which could have the effect of increasing our expenses. In addition, the European Commission adopted several acts under the revised Markets in Financial Instruments Directive (known as “MiFID II”) that prevent the “bundling” of the cost of research together with trading commissions. As a result, clients subject to MiFID II may be unable to use soft dollars to pay for research services in the United Kingdom and in Europe.

Our U.S.‑based employees routinely travel outside the United States as a part of our investment research process or to market our services and may spend extended periods of time in one or more non‑U.S. jurisdictions. Their activities outside the United States on our behalf may raise both tax and regulatory issues. If and to the extent we are incorrect in our analysis of the applicability or impact of non‑U.S. tax or regulatory requirements, we could incur costs or penalties or be the subject of an enforcement or other action. Operating our business in non‑U.S. markets is generally more expensive than in the United States. In addition, costs related to our distribution and marketing efforts in non‑U.S. markets generally have been more expensive than comparable costs in the United States. To the extent that our revenues do not increase to the same degree as our expenses increase in connection with our continuing expansion outside the United States, our profitability could be adversely affected. Expanding our business into non‑U.S. markets may also place significant demands on our existing infrastructure and employees.

We are also subject to a number of laws and regulations governing payments and contributions to political persons or other third parties, including restrictions imposed by the Foreign Corrupt Practices Act (the “FCPA”), as well as trade sanctions administered by the Office of Foreign Assets Control, or OFAC, the U.S. Department of Commerce and the U.S. Department of State. Similar laws in non‑U.S. jurisdictions may also impose stricter or more onerous requirements and implementing them may disrupt our business or cause us to incur significantly more costs to comply with those laws. Different laws may also contain conflicting provisions, making compliance with all laws more difficult. Any determination that we have violated the FCPA or other applicable anti‑corruption laws or sanctions could subject us to, among other things, civil and criminal penalties, material fines, profit disgorgement, injunctions on future conduct, securities litigation and a general loss of investor confidence, any one of which could adversely affect our business prospects, financial condition, or results of operations. While we have developed and implemented policies and procedures designed to ensure strict compliance by us and our personnel with the FCPA and other anti‑corruption laws or sanctions in jurisdictions in which we operate, such policies and procedures may not be effective in all instances to prevent violations.

Following the June 2016 vote to exit the EU, the United Kingdom (“UK”) served notice under Article 50 of the Treaty of European Union on March 29, 2017 to initiate the two-year long process of exiting from the EU, commonly referred to as “Brexit”. After several extensions to this period, the UK left the EU on January 31, 2020 (the “Exit Day”). EU laws continue to apply in the UK for a transitional period following Exit Day until December 31, 2020 under the withdrawal agreement between the UK and the EU. In any event, the UK has undertaken a process of “on-shoring” all EU legislation, pursuant to which there appears, at this stage, to be no policy changes to EU law. However, the uncertainty as to the timing and nature of the UK’s exit and future relationship with the EU has resulted in market and currency volatility, and there are potentially major implications for business and issuers. Although we do not currently expect Brexit to have a major impact on our business, any negative impact to overall investor confidence or instability in the global macroeconomic environment could have an adverse economic impact on our results of operations.

### Our substantial indebtedness may expose us to material risks.

As of December 31, 2019, we had $952.0 million of outstanding term loans under the 2019 Credit Agreement. In 2019, we repaid $148.0 million of the outstanding term loans under the 2019 Credit Agreement and subsequent to December 31, 2019, we repaid an additional $38.0 million. Our substantial indebtedness may make it more difficult for us to withstand or respond to adverse or changing business, regulatory and economic conditions or to take advantage of new business opportunities or make necessary capital expenditures. In addition, the 2019 Credit Agreement contains financial and operating covenants that may limit our ability to conduct our business. While we are currently in compliance in all material respects with the financial and operating covenants under the 2019 Credit Agreement, we cannot assure that at all times in the future we will satisfy all such financial and operating covenants (or any such covenants applicable at the time) or obtain any required waiver or amendment, in which event all outstanding indebtedness could become immediately due and payable. This could result in a substantial reduction in our liquidity and could challenge our ability to meet future cash needs of the business.

To the extent we service our debt from our cash flow, such cash will not be available for our operations or other purposes. Because of our significant debt service obligations, the portion of our cash flow used to service those obligations could be substantial if our revenues decline, whether because of market declines or for other reasons. Any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or force us to modify our operations. Our ability to repay the principal amount of any outstanding loans under the 2019 Credit Agreement, to refinance our debt or to obtain additional financing through debt or the sale of additional equity securities will depend on our performance, as well as financial, business and other general economic factors affecting the credit and equity markets generally or our business in particular, many of which are beyond our control. Any such alternatives may not be available to us on satisfactory terms or at all.

Subsequent to December 31, 2019, we entered into the First Amendment to the Credit Agreement (the “First Amendment”) dated as of July 1, 2019 with other loan parties thereto, Barclays Bank PLC, as administrative agent, and the Royal Bank of Canada as fronting bank, and the lenders party thereto which amends the 2019 Credit Agreement.

Pursuant to The First Amendment, effective January 17, 2020, the Company refinanced the existing term loans (the “Existing Term Loans”) with replacement term loans in an aggregate principal amount of $952.0 million (the “Repriced Term Loans”). The Repriced Term Loans provide for substantially the same terms as the Existing Term Loans, including the same maturity date of June 2026, except that the Repriced Term Loans provide for a reduced applicable margin on the LIBOR of 75 basis points. The applicable margin on LIBOR under the Repriced Term Loans is 2.50%, compared to 3.25% under the Existing Term Loans.

### Potential impairment of goodwill and intangible assets could reduce our assets.

As of December 31, 2019, our goodwill and intangible assets totaled $1.6 billion. The value of these assets may not be realized for a variety of reasons, including, but not limited to, significant redemptions, loss of clients, damage to brand name and unfavorable economic conditions. In accordance with the guidance under Financial Accounting Standards Board, or FASB, ASC 350‑20, Intangibles—Goodwill and Other, we review the carrying value of goodwill and intangible assets not subject to amortization on an annual basis, or more frequently if indications exist suggesting that the fair value of our intangible assets may be below their carrying value. Determining goodwill and intangible assets, and evaluating them for impairment, requires significant management estimates and judgment, including estimating value and assessing useful life in connection with the allocation of purchase price in the acquisition creating them. We evaluate the value of intangible assets subject to amortization whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Should such reviews indicate impairment, a reduction of the carrying value of the intangible asset could occur.

***Disruption to the operations of third parties whose functions are integral to our ETF platform may adversely affect the prices at which VictoryShares trade, particularly during periods of market volatility.***

Shares of ETFs, such as VictoryShares, trade on stock exchanges at prices at, above or below the ETF’s most recent net asset value. While ETFs utilize a creation/redemption feature and arbitrage mechanism designed to make it more likely that the ETF’s shares normally will trade at prices close to the ETF’s net asset value, exchange prices may deviate significantly from the ETF’s net asset value. ETF market prices are subject to numerous potential risks, including trading halts invoked by a stock exchange, inability or unwillingness of market makers, authorized participants, settlement systems or other market participants to perform functions necessary for an ETF’s arbitrage mechanism to function effectively, or significant market volatility. If market events lead to incidences where ETFs trade at prices that deviate significantly from an ETF’s net asset value, or trading halts are invoked by the relevant stock exchange or market, investors may lose confidence in ETF products and redeem their holdings, which may cause our AUM, revenue and earnings to decline.

***If we were deemed an investment company required to register under the 1940 Act, we would become subject to burdensome regulatory requirements and our business activities could be restricted.***

Generally, a company is an “investment company” required to register under the 1940 Act if, absent an applicable exception or exemption, it (i) is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or (ii) engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.

We hold ourselves out as an investment management firm and do not propose to engage primarily in the business of investing, reinvesting or trading in securities. We believe we are engaged primarily in the business of providing investment management services and not in the business of investing, reinvesting or trading in securities. We also believe our primary source of income is properly characterized as income earned in exchange for the provision of services. We believe less than 40% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis comprise assets that could be considered investment securities.

We intend to conduct our operations so that we will not be deemed an investment company required to register under the 1940 Act. However, if we were to be deemed an investment company required to register under the 1940 Act, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with our affiliates, could make it impractical for us to continue our business as currently conducted and could have a material adverse effect on our financial performance and operations.

***Our expenses are subject to fluctuations that could materially impact our results of operations.***

Our results of operations are dependent upon the level of our expenses, which can vary from period to period. We have certain fixed expenses that we incur as a going concern, and some of those expenses are not subject to adjustment. If our revenues decrease, without a corresponding decrease in expenses, our results of operations would be negatively impacted. While a majority of our expenses are variable, and we attempt to project expense levels in advance, there is no guarantee that an unforeseen expense will not arise or that we will be able to adjust our variable expenses quickly enough to match a declining revenue base. Consequently, either event could have either a temporary or permanent negative impact on our results of operations.

***Failure to properly address conflicts of interest could harm our reputation, business and results of operations.***

As we have expanded the scope of our businesses and our client base, we must continue to address conflicts between our interests and those of our clients. In addition, the SEC and other regulators have increased their scrutiny of potential conflicts of interest. We have procedures and controls that are reasonably designed to address these issues. However, appropriately dealing with conflicts of interest is complex and difficult and if we fail, or appear to fail, to deal appropriately with conflicts of interest, we could face reputational damage, litigation or regulatory proceedings or penalties, any of which may adversely affect our revenues or net income.

***Insurance may not be available on a cost-effective basis to protect us from liability.***

We face the inherent risk of liability related to litigation from clients, third-party vendors or others and actions taken by regulatory agencies. To help protect against these potential liabilities, we purchase insurance in amounts, and against risks, that we consider appropriate, where such insurance is available at prices, we deem acceptable. There can be no assurance, however, that a claim or claims will be covered by insurance or, if covered, will not exceed the limits of available insurance coverage, that any insurer will remain solvent and will meet its obligations to provide us with coverage or that insurance coverage will continue to be available with sufficient limits at a reasonable cost. Insurance costs are impacted by market conditions and the risk profile of the insured and may increase significantly over relatively short periods. In addition, certain insurance coverage may not be available or may only be available at prohibitive costs. Renewals of insurance policies may expose us to additional costs through higher premiums or the assumption of higher deductibles or co-insurance liability.

***Certain liabilities resulting from acquisitions are estimated and could lead to a material impact on earnings.***

Through our acquisition activities, we may record liabilities for future contingent earnout payments that are to be settled in cash. The fair value of these liabilities is assessed on a quarterly basis and changes in assumptions used to determine the amount of the liability could lead to an adjustment that may have a material impact, favorable or unfavorable, on our results of operations.

### Risks Relating to Our Industry

***Recent trends in the investment management industry could reduce our AUM, revenues and net income.***

Certain passive products and asset classes, such as index and certain types of ETFs, are becoming increasingly popular with investors, including institutional investors. In recent years, across the investment management industry, passive products have experienced inflows and traditional actively managed products have experienced outflows, in each case, in the aggregate. In order to maintain appropriate fee levels in a competitive environment, we must be able to continue to provide clients with investment products and services that are viewed as appropriate in relation to the fees charged, which may require us to demonstrate that our strategies can outperform such passive products. If our clients, including our funds’ boards, were to view our fees as being high relative to the market or the returns provided by our investment products, we may choose to reduce our fee levels or existing clients may withdraw their assets in order to invest in passive products, and we may be unable to attract additional commitments from existing and new clients, which would lead to a decline in our AUM and market share. To the extent we offer such passive products, we may not be able to compete with other firms offering similar products.

Our revenues and net income are dependent on our ability to maintain current fee levels for the products and services we offer. The competitive nature of the investment management industry has led to a trend toward lower fees in certain segments of the investment management market. Our ability to sustain fee levels depends on future growth in specific asset classes and distribution channels. These factors, as well as regulatory changes, could further inhibit our ability to sustain fees for certain products. A reduction in the fees charged by us could reduce our revenues and net income.

Our fees vary by asset class and produce different revenues per dollar of AUM based on factors such as the type of assets being managed, the applicable strategy, the type of client and the client fee schedule. Institutional clients may have significant negotiating leverage in establishing the terms of an advisory relationship, particularly with respect to the level of fees paid, and the competitive pressure to attract and retain institutional clients may impact the level of fee income earned by us. We may decline to manage assets from potential clients who demand lower fees even though such assets would increase our revenue and AUM in the short term.

### As an investment management firm, we are subject to extensive regulation.

Investment management firms are subject to extensive regulation in the United States, primarily at the federal level, including regulation by the SEC under the 1940 Act and the Advisers Act, by the U.S. Department of Labor, or the DOL, under ERISA, by the Commodity Futures Trading Commission, or the CFTC, by the National Futures Association, or NFA, under the Commodity Exchange Act, and by the Financial Industry Regulatory Authority, Inc., or FINRA. The U.S. mutual funds and ETFs we manage are registered with and regulated by the SEC as investment companies under the 1940 Act. The Advisers Act imposes numerous obligations on investment advisers, including recordkeeping, advertising and operating requirements, disclosure obligations and prohibitions on fraudulent activities. The 1940 Act imposes similar obligations, as well as additional detailed operational requirements, on registered funds, which must be adhered to by their investment advisers. We have also expanded our distribution effort into non‑U.S. markets through partnered distribution efforts and product offerings, including Europe, Japan, Singapore and Hong Kong. In the future, we may further expand our business outside of the United States in such a way or to such an extent that we may be required to register with additional foreign regulatory agencies or otherwise comply with additional non‑U.S. laws and regulations that do not currently apply to us and with respect to which we do not have compliance experience. Our lack of experience in complying with any such non‑U.S. laws and regulations may increase our risk of being subject to regulatory actions and becoming party to litigation in such non‑U.S. jurisdictions, which could be more expensive. Moreover, being subject to regulation in multiple jurisdictions may increase the cost, complexity and time required for engaging in transactions that require regulatory approval.

Accordingly, we face the risk of significant intervention by regulatory authorities, including extended investigation and surveillance activity, adoption of costly or restrictive new regulations and judicial or administrative proceedings that may result in substantial penalties. Among other things, we could be fined, lose our licenses or be prohibited or limited from engaging in some of our business activities or corporate transactions. The requirements imposed by our regulators are designed to ensure the integrity of the financial markets and to protect clients and other third parties who deal with us, and are not designed to protect our shareholders. Consequently, these regulations often serve to limit our activities, including through net capital, client protection and market conduct requirements.

***The regulatory environment in which we operate is subject to continual change and regulatory developments designed to increase oversight may materially adversely affect our business.***

We operate in a legislative and regulatory environment that is subject to continual change, the nature of which we cannot predict. We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. or non‑U.S. governmental regulatory authorities or self‑regulatory organizations that supervise the financial markets. The SEC and its staff are currently engaged in various initiatives and reviews that seek to improve and modernize the regulatory structure governing the asset management industry, and registered investment companies in particular. In so doing, it has adopted rules that include (i) new monthly and annual reporting requirements for certain U.S. registered funds; (ii) enhanced reporting regimes for investment advisers; and (iii) implementing liquidity risk management programs for ETFs and open-end funds. In addition, more recently the SEC has also adopted the following rules, many of which are currently in an implementation period, which will increase our public reporting and disclosure requirements, which could be costly and may impede the Company’s growth.

*Standards of Conduct Rulemaking:* In June 2019, the SEC adopted a package of rulemakings and interpretations, including Regulation Best Interest and the new Form CRS Relationship Summary (“Form CRS”) which are intended to improve the retail investor experience and provide greater clarity and transparency regarding retail investors’ relationships with broker-dealers and investment advisers. Regulation Best Interest enhances the broker-dealer standard of conduct beyond existing suitability obligations and requires compliance with disclosure, care, conflict of interest and compliance obligations. Form CRS requires broker-dealers and registered investment advisers to provide a brief relationship summary to retail investors, including (i) the types of client and customer relationships and services we offer, (ii) the fees, costs, conflicts of interest and required standard of conduct associated with those relationships and services, (iii) whether we and any of our financial professionals currently have reportable legal or disciplinary history; and (iv) how to obtain additional information. The rulemakings and interpretations could increase Victory’s disclosure obligations, impact distribution arrangements and create compliance and operational challenges for Victory’s distribution partners. The Department of Labor has also indicated it intends to propose a standards of conduct rule in 2020.

*SEC Guidance on Proxy Voting Responsibilities of Investment Advisors:* In August 2019, the SEC published guidance to assist investment advisers with their proxy voting responsibilities under the Advisers Act. The guidance confirmed that investment advisers’ fiduciary duties of care and loyalty to their clients apply to proxy voting and encouraged advisors with voting authority to review their policies and procedures in detail and consider whether more analysis may be required under certain circumstances, including when a proxy advisory firm’s services are retained. This guidance could impact voting arrangements between Victory and its clients, and lead to additional compliance, operational and disclosure obligations for Victory.

*SEC ETF Rule*: In September 2019, the SEC adopted rule 6c-11 under the Investment Company Act of 1940 (the “Investment Company Act”) known as the “ETF Rule”. The ETF Rule will allow ETFs that satisfy certain conditions to operate without first obtaining individual exemptive relief from the SEC. The ETF Rule is designed to create a clear and consistent regulatory framework for most ETFs operating today and will impact all ETFs registered under the Investment Company Act The ETF Rule and related form amendments became effective in December 2019. The form amendments will have a transition period of one year following the effective date. In addition, the ETF Rule rescinds, one year after its effective date, the existing exemptive relief for all eligible ETFs.

*SEC Derivatives Rule for US Registered Funds: In November 2019, the SEC proposed a rule designed to enhance* the regulation of the use of derivatives by registered investment companies, including mutual funds (other than money market funds), ETFs and closed-end funds, as well as business development companies. The proposed rule would permit such funds to use derivatives, such as forwards, futures, swaps and written options, that create future payment obligations, provided that the funds comply with certain conditions including adopting a derivatives risk management program and complying with a limit on the amount of leverage-related risk that a fund may obtain, based on value-at-risk. If adopted without change, the proposed rule would increase disclosure and compliance obligations and may impact certain funds’ usage of derivatives in their investment strategy.

The requirements imposed by our regulators (including both U.S. and non‑U.S. regulators) are designed to ensure the integrity of the financial markets and to protect clients and other third parties who deal with us, and are not designed to protect our shareholders. Consequently, these regulations often serve to limit our activities and/or increase our costs, including through client protection and market conduct requirements. New laws or regulations, or changes in the enforcement of existing laws or regulations, applicable to us and our clients may adversely affect our business. Our ability to function in this environment will depend on our ability to constantly monitor and promptly react to legislative and regulatory changes. There have been a number of highly publicized regulatory inquiries that have focused on the investment management industry. These inquiries already have resulted in increased scrutiny of the industry and new rules and regulations for mutual funds and investment managers. This regulatory scrutiny may limit our ability to engage in certain activities that might be beneficial to our shareholders.

We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self‑regulatory organizations, as well as by courts. It is impossible to determine the extent of the impact of any new U.S. or non‑U.S. laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. Compliance with any new laws or regulations could be more difficult and expensive and affect the manner in which we conduct business. Refer to “Regulatory Environment and Compliance.”

### The investment management industry is intensely competitive.

The investment management industry is intensely competitive, with competition based on a variety of factors, including investment performance, fees, continuity of investment professionals and client relationships, the quality of services provided to clients, corporate positioning and business reputation, continuity of selling arrangements with intermediaries and differentiated products. A number of factors, including the following, serve to increase our competitive risks:

- a number of our competitors have greater financial, technical, marketing and other resources, more comprehensive name recognition and more personnel than we do;
- potential competitors have a relatively low cost of entering the investment management industry;
- certain investors may prefer to invest with an investment manager that is not publicly traded based on the perception that a publicly traded asset manager may focus on the manager’s own growth to the detriment of investment performance for clients;
- other industry participants, hedge funds and alternative asset managers may seek to recruit our investment professionals; and
- certain competitors charge lower fees for their investment management services than we do.

Additionally, intermediaries through which we distribute our funds may also sell their own proprietary funds and investment products, which could limit the distribution of our strategies. If we are unable to compete effectively, our earnings could be reduced and our business could be materially adversely affected.

### Risks Relating to Our Capital Structure

***A relatively large percentage of our common stock is concentrated with a small number of shareholders, which could increase the volatility in our stock trading and affect our share price.***

A large percentage of our common stock is held by a limited number of shareholders. If our larger shareholders decide to liquidate their positions, it could cause significant fluctuation in the share price of our common stock. Public companies with a relatively concentrated level of institutional shareholders, such as we have, often have difficulty generating trading volume in their stock, which may increase the volatility in the price of our common stock.

***The market price of our Class A common stock is likely to be volatile and could decline.***

The stock market in general has been highly volatile. As a result, the market price and trading volume for our Class A common stock may also be highly volatile, and investors in our Class A common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. Factors that could cause the market price of our Class A common stock to fluctuate significantly include:

- our operating and financial performance and prospects and the performance of other similar companies;
- our quarterly or annual earnings or those of other companies in our industry;
- conditions that impact demand for our products and services;
- the public’s reaction to our press releases, financial guidance and other public announcements, and filings with the SEC;
- changes in earnings estimates or recommendations by securities or research analysts who track our Class A common stock;
- market and industry perception of our level of success in pursuing our growth strategy;
- strategic actions by us or our competitors, such as acquisitions or restructurings;
- changes in government and other regulations;
- changes in accounting standards, policies, guidance, interpretations or principles;
- departure of key personnel;
- the number of shares publicly traded;
- investor scrutiny of our dual‑class structure, including new rules adopted by certain index providers, such as S&P Dow Jones and FTSE Russell, that limit or preclude inclusion of companies with multiple‑class capital structure in certain indices;
- sales of common stock by us, our investors or members of our management team; and
- changes in general market, economic and political conditions in the U.S. and global economies or financial markets, including those resulting from natural disasters, telecommunications failures, cyber‑attacks, civil unrest in various parts of the world, acts of war, terrorist attacks or other catastrophic events.

Any of these factors may result in large and sudden changes in the trading volume and market price of our Class A common stock.

Following periods of volatility in the market price of a company’s securities, shareholders often file securities class‑action lawsuits against such company. Our involvement in a class‑action lawsuit could divert our senior management’s attention and, if adversely determined, could have a material and adverse effect on our business, financial condition and results of operations.

***The dual class structure of our common stock has the effect of concentrating voting control with those shareholders who hold our Class B common stock.***

Our Class B common stock has ten votes per share and our Class A common stock has one vote per share. Our Employee Shareholders Committee, Crestview GP, Reverence Capital, our directors and executive officers and each of and their respective affiliates, hold in the aggregate 96.5% of the total voting power of our outstanding common stock and the unvested restricted stock as of December 31, 2019. Because of the ten‑to‑one voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the voting power of our common stock and therefore will be able to control all matters submitted to our shareholders for approval. Our Class B common stock will be converted into shares of Class A common stock, which conversion will occur automatically, in the case of each share of Class B common stock, upon transfers (subject to limited exceptions, such as certain transfers effected for estate planning purposes), a termination of employment by an employee shareholder or upon the date the number of shares of Class B common stock then outstanding (including unvested restricted shares) is less than 10% of the aggregate number of shares of Class A common stock and Class B common stock then outstanding (including unvested restricted shares). We may issue additional shares of our Class B common stock in the future, including in connection with acquisitions or equity grants to employees.

The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term, including the holders of newly issued shares of Class B common stock and the holders of Class B common stock subject to the Employee Shareholders’ Agreement, whose shares will be voted by the Employee Shareholders Committee.

***Crestview GP controls us and its interests may conflict with ours or other shareholders’ in the future.***

Crestview GP does not hold any of our Class A common stock, but beneficially owns 50.8% of our common stock through its beneficial ownership of our Class B common stock and 62.6% of the total voting power of our outstanding common stock and unvested restricted stock as of December 31, 2019. As a result, Crestview GP has the ability to elect a majority of the members of our board of directors and thereby control our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock (including the Class A common stock), the incurrence of debt by us, amendments to our amended and restated certificate of incorporation and amended and restated bylaws, and the entering into of extraordinary transactions. Crestview GP will also be able to determine the outcome of all matters requiring shareholder approval and will be able to cause or prevent a change in control of us or a change in the composition of our board of directors and could preclude any acquisition of us. This concentration of voting control could deprive other shareholders of an opportunity to receive a premium for shares of their Class A common stock as part of a sale of us and ultimately might affect the market price of our Class A common stock. Further, the interests of Crestview GP may not in all cases be aligned with other shareholders’ interests.

In addition, Crestview GP may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to other shareholders. For example, Crestview GP could cause us to make acquisitions that increase our indebtedness or cause us to sell revenue‑generating assets. Crestview GP is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Our amended and restated certificate of incorporation provides that none of Crestview GP or Reverence Capital or any of their respective affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Crestview GP or Reverence Capital also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us, which could have an adverse effect on our growth prospects.

### Future sales of shares by shareholders could cause our stock price to decline.

Sales of substantial amounts of our Class A common stock in the public market, or the perception that these sales could occur, could cause the market price of our Class A common stock to decline. As of February 28, 2020, 16,636,811 shares of our Class A common stock and 51,256,188 shares of our Class B common stock, which are convertible, at the option of the holder, into an equal number of shares of Class A common stock, are outstanding. Of these shares, all of the shares of Class A common stock is freely tradable without restriction under the Securities Act, unless purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. The 52,940,026 shares of our Class B common stock held by Crestview GP, Reverence Capital, our directors and officers and other existing shareholders, are “restricted securities” within the meaning of Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration under Rule 144 or Rule 701 under the Securities Act.

In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition or employee arrangement, or in certain other circumstances. Any of these issuances could result in substantial dilution to our existing shareholders and could cause the trading price of our Class A common stock to decline.

***If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could decline.***

The trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If there is no coverage of us by securities or industry analysts, the trading price for our shares could be negatively impacted. In the event we obtain securities or industry analyst coverage and if one or more of these analysts downgrades our shares or publishes misleading or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our shares could decrease, which could cause our stock price or trading volume to decline.

***We are an “emerging growth company,” and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our Class A common stock less attractive to investors.***

We are an “emerging growth company,” as defined in the Jumpstart Our Business Start-ups Act, or the JOBS Act, enacted in April 2012, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies, including, but not limited to, reduced disclosure obligations regarding executive compensation (including Chief Executive Officer pay ratio disclosure) in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies.

We may take advantage of these exemptions until such time that we are no longer an emerging growth company. Accordingly, the information contained herein may be different than the information provided by other public companies. We could remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues are at least $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b‑2 under the Exchange Act, which would occur if, among other things, the market value of our common equity securities held by non‑affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in nonconvertible debt securities during the preceding three‑year period.

We cannot predict whether investors will find our Class A common stock less attractive if we choose to rely on one or more of the exemptions described above. If investors find our Class A common stock less attractive as a result of any decisions to reduce future disclosure, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.

***The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an “emerging growth company.”***

Prior to February 2018, we operated as a private company and had not been subject to the same financial and other reporting and corporate governance requirements of a public company. As a public company, we are now required to file annual, quarterly and other reports with the SEC. We need to prepare and timely file financial statements that comply with SEC reporting requirements. We also are subject to other reporting and corporate governance requirements under the listing standards of NASDAQ and the Sarbanes‑Oxley Act, which impose significant compliance costs and obligations upon us. Being a public company requires a significant commitment of additional resources and management oversight, which add to operating costs. These changes place significant additional demands on our finance and accounting staff, which may not have prior public company experience or experience working for a newly public company, and on our financial accounting and information systems, and we may need to, in the future, hire additional accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge. Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, we are required, among other things, to:

- prepare and file periodic reports, and distribute other shareholder communications, in compliance with the federal securities laws and the NASDAQ rules;
- define and expand the roles and the duties of our board of directors and its committees;
- institute more comprehensive compliance, investor relations and internal audit functions; and
- evaluate and maintain our system of internal control over financial reporting, and report on management’s assessment thereof, in compliance with rules and regulations of the SEC.

In particular, the Sarbanes‑Oxley Act requires us to document and test the effectiveness of our internal control over financial reporting in accordance with an established internal control framework, and to report on our conclusions as to the effectiveness of our internal controls. Currently we choose to utilize the exemption pursuant to Section 404(b) of the Sarbanes-Oxley Act for “emerging growth companies” whereby our independent registered public accounting firm is not required to provide an attestation report on the effectiveness of our internal control over financial reporting. As described in the previous risk factor, we could potentially qualify as an emerging growth company until December 31, 2023. In addition, we are required under the Exchange Act to maintain disclosure controls and procedures and internal control over financial reporting. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in the reliability of our financial statements. This could result in a decrease in the value of our Class A common stock. Failure to comply with the Sarbanes‑Oxley Act could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities.

***Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, operating results and stock price.***

Section 404 of the Sarbanes-Oxley Act and related SEC rules require that we perform an annual management assessment of the design and effectiveness of our internal control over financial reporting. Our assessment concluded that our internal control over financial reporting was effective as of December 31, 2019; however, there can be no assurance that we will be able to maintain the adequacy of our internal control over financial reporting, as such standards are modified, supplemented or amended from time to time in future periods. Accordingly, we cannot assure that we will be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal control is necessary for us to produce reliable financial reports and is important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our Class A common stock could drop significantly.

***Our ability to pay regular dividends is subject to our Board’s discretion and Delaware law.***

We intend to pay dividends to holders of our Class A common stock as described in “Dividend Policy.” Our board of directors may, in its sole discretion, change the amount or frequency of dividends or discontinue the payment of dividends entirely. In making decisions regarding our quarterly dividends, we consider general economic and business conditions, our strategic plans and prospects, our businesses and investment opportunities, our financial condition and operating results, working capital requirements and anticipated cash needs, contractual restrictions (including under the terms of our 2019 Credit Agreement) and legal, tax, regulatory and such other factors as we may deem relevant.

***Future offerings of debt or equity securities may rank senior to our Class A common stock.***

If we decide to issue debt securities in the future, which would rank senior to shares of our common stock, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. We and, indirectly, our shareholders will bear the cost of issuing and servicing such securities. We may also issue preferred equity, which will have superior rights relative to our common stock, including with respect to voting and liquidation.

Furthermore, if our future access to public markets is limited or our performance decreases, we may need to carry out a private placement or public offering of our Class A common stock at a lower price than the price at which investors purchased their shares.

Because our decision to issue debt, preferred or other equity or equity‑linked securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our Class A common stock will bear the risk of our future offerings reducing the market price of our Class A common stock and diluting the value of their shareholdings in us.

***We are a “controlled company” within the meaning of the rules of NASDAQ, and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.***

Crestview GP controls a majority of the voting power of our common stock. As a result, we are a “controlled company” under NASDAQ’s corporate governance listing standards. As a controlled company, we are exempt from the obligation to comply with certain corporate governance requirements, including the requirements:

- that a majority of our board of directors consist of independent directors, as defined under the rules of NASDAQ;
- that we have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
- that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

We do not intend to take advantage of these exemptions once Crestview GP no longer controls a majority of our voting power. These exemptions do not modify the independence requirements for our audit committee.

***Provisions in our charter documents could discourage a takeover that shareholders may consider favorable.***

Certain provisions in our governing documents could make a merger, tender offer or proxy contest involving us difficult, even if such events would be beneficial to the interests of our shareholders. Among other things, these provisions:

- permit our board of directors to establish the number of directors and fill any vacancies and newly created directorships;
- authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a shareholder rights plan;
- provide that our board of directors is expressly authorized to amend or repeal any provision of our bylaws;
- restrict the forum for certain litigation against us to Delaware;
- establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by shareholders at annual shareholder meetings;
- provide for a dual‑class common stock structure pursuant to which holders of our Class B common stock will have ten votes per share compared to the one vote per share of our Class A common stock and thereby will have the ability to control the outcome of matters requiring shareholder approval;
- establish a classified board of directors with three classes of directors and the removal of directors only for cause;
- require that actions to be taken by our shareholders be taken only at an annual or special meeting of our shareholders, and not by written consent, once Crestview GP owns 50% or less of the voting power of our outstanding capital stock;
- establish certain limitations on convening special shareholder meetings; and
- restrict business combinations with interested shareholders.

These provisions may delay or prevent attempts by our shareholders to replace members of our management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management. Anti‑takeover provisions could depress the price of our Class A common stock by acting to delay or prevent a change in control of us.

***Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.***

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits.

### Risks Relating to the USAA AMCO Acquisition

***We may not realize the benefits we expect from the USAA AMCO Acquisition because of integration difficulties and other challenges.***

The success of the USAA AMCO Acquisition will depend in large part on the success of integrating the personnel, operations, strategies, technologies and other components of the businesses following the completion of the Acquisition(s). The Company may fail to realize some or all of the anticipated benefits of the Acquisitions if the integration process takes longer than expected or is more costly than expected. The failure of the Company to meet the challenges involved in successfully integrating the operations of the USAA Acquired Companies or to otherwise realize any of the anticipated benefits of either Acquisition could impair the operations of the Company. Potential difficulties the combined business may encounter in the integration process include the following:

- The integration of personnel, operations, strategies, technologies and support services;
- The disruption of ongoing businesses and distraction of their respective personnel from ongoing business concerns;
- The retention of the existing clients;
- The retention of key intermediary distribution relationships;
- The integration of corporate cultures and maintenance of employee morale;
- The retention of key employees;
- The creation of uniform standards, controls, procedures, policies and information systems;
- The reduction of the costs associated with combining operations;
- The consolidation and rationalization of information technology platforms and administrative infrastructures; and
- Potential unknown liabilities;

The anticipated benefits and synergies include the elimination of duplicative personnel, realization of efficiencies in consolidating duplicative corporate, business support functions and amortization of purchased intangibles for tax purposes. However, these anticipated benefits and synergies assume a successful integration and are based on projections, which are inherently uncertain, and other assumptions. Even if integration is successful, anticipated benefits and synergies may not be achieved.

***The USAA AMCO Acquisition is expected to accelerate the timing of when we cease to be an emerging growth company, resulting in increased reporting and disclosure requirements.***

We are an emerging growth company and, for as long as we continue to be an emerging growth company, we may choose to continue to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 and taking advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of our IPO, (ii) the first fiscal year after our annual gross revenues are $1.07 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities or (iv) the end of any fiscal year in which the market value of our Class A common stock held by non-affiliates is at least $700 million as of the end of the second quarter of that fiscal year. The USAA AMCO Acquisition is expected to accelerate the timing of when we cease to be an emerging growth company to a period shorter than the fifth anniversary of our IPO. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in the reliability of our financial statements. Refer to “Risk Factors-Risks Relating to Our Capital Structure-We are an “emerging growth company,” and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our Class A common stock less attractive to investors.”

## Properties

As filed, 498 characters.

The Company leases its principal executive offices, which are located in San Antonio, TX. In the United States, the Company also leases office space in Brooklyn, OH; New York, NY; Birmingham, MI; Boston, MA; Rocky River, OH; Cincinnati, OH; Denver, CO; Des Moines, IA; and San Francisco, CA. Outside the United States, the Company leases office space in Singapore, Hong Kong and London. The Company believes its existing facilities are adequate to meet its current and future business requirements.

## Legal proceedings

As filed, 185 characters.

From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company is not currently a party to any material legal proceedings.

## Management's discussion and analysis

As filed, 77,177 characters.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to, and should be read in conjunction with the “Selected Financial Data” and our consolidated financial statements and related notes thereto included elsewhere in this report. In addition to historical information, this discussion and analysis contains forward‑looking statements that involve risks, uncertainties and assumptions, which could cause actual results to differ materially from management’s expectations. Please refer to the sections of this report entitled “Forward‑Looking Statements” and “Risk Factors.”

### Overview

**Our Business –** We are a diversified global asset management firm with $151.8 billion in assets under management as of December 31, 2019. The Company operates a next-generation business model combining boutique investment qualities with the benefits of a fully integrated, centralized operating and distribution platform.

We provide specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors. With nine autonomous Investment Franchises and a Solutions Platform, Victory Capital offers a wide array of investment styles and investment vehicles including, actively managed mutual funds, separately managed accounts, rules-based and active ETFs, multi-asset class strategies, custom-designed solutions and a 529 College Savings Plan. Our earnings are primarily driven by asset-based fees charged for services related to the investment strategies we deliver and consist of investment management, fund administration and distribution fees.

**Franchises –** Our Franchises are operationally integrated, but are separately branded and make investment decisions independently from one another within guidelines established by their respective investment mandates. Our integrated model creates a supportive environment in which our investment professionals, largely unencumbered by administrative and operational responsibilities, can focus on their pursuit of investment excellence. VCM employs all of our U.S. investment professionals across our Franchises, which are not separate legal entities.

**Solutions –** Our Solutions Platform consists of multi-Franchise and customized solutions strategies that are primarily rules-based. We offer our Solutions Platform through a variety of vehicles, including separate accounts, mutual funds and VictoryShares which is our ETF brand. Like our Franchises, our Solutions Platform is operationally integrated and supported by our centralized distribution, marketing and operational support functions. Our approach furthers our commitment to rules‑based investing and includes single and multi‑factor strategies designed to provide a variety of outcomes, including maximum diversification, dividend income, downside mitigation, minimum volatility, thematic and targeted factor exposure.

Professionals within our institutional, retail and direct member distribution channels and marketing organization sell our products through our centralized distribution model. Our institutional sales team focuses on cultivating relationships with institutional consultants, who account for the majority of the institutional market, as well as asset allocators seeking sub-advisers. Our retail sales team offers intermediary and retirement platform clients, including broker-dealers, retirement platforms and RIA networks, mutual funds and ETFs as well as SMAs through wrap fee programs and access to our investment models through UMAs. Our direct member channel serves the investment needs of clients including USAA members and military community.

We have grown our AUM from $17.9 billion following the management-led buyout with Crestview GP in August 2013 to $151.8 billion at December 31, 2019. We attribute this growth to our success in sourcing acquisitions and evolving them into organic growers, generating strong investment returns, and developing institutional, retail, and direct client distribution channels with deep penetration.

**USAA AMCO Acquisition –** Effective July 1, 2019, the Company completed the USAA AMCO Acquisition, a transformative acquisition that increased AUM by $81.1 billion and significantly impacted our financial results for the year ended December 31, 2019. The acquisition not only increased AUM and revenue, but also introduced additional personnel expenses and new and additional operating expenses such as third party distribution costs, expenses related to a transfer services agreement with USAA, 529 College Savings Plan, and direct member channel expenses that the Company did not incur prior to the acquisition. In conjunction with the USAA AMCO Acquisition, the Company entered into the 2019 Credit Agreement, dated July 1, 2019, and obtained a seven-year term loan in an aggregate principal amount of $1.1 billion. All indebtedness outstanding under the previous credit agreement was repaid and terminated as of July 1, 2019.

The USAA AMCO Acquisition expands and diversifies our investment platform, particularly in the fixed income and solutions asset classes, and increases our size and scale. Additional products added to our investments platform include target date and target risk strategies, managed volatility mutual funds, active fixed income ETFs, sub-advised and multi-manager equity funds. We have also added to our lineup of asset allocation portfolios and smart beta equity ETFs. Through the acquisition, the Company has the rights to offer products and services using the USAA brand for a period of time and the opportunity to offer its products to USAA members through a direct member channel. In addition, we have entered into a referral agreement with USAA for members that are interested in investing in USAA Funds or USAA 529 College Savings Plan.

Total consideration for the USAA AMCO Acquisition was $950.1 million, comprising of $851.3 million of cash paid at closing and $98.8 million as the estimated fair value of contingent consideration as of the acquisition date. A maximum of $150.0 million ($37.5 million per year) in contingent payments is payable to sellers based on the annual revenue of USAA Adviser attributable to all “non-managed money”-related AUM in each of the first four years following the closing date.

The estimated fair value of contingent consideration arrangements as of December 31, 2019 were $118.7 million and consist of the USAA AMCO earn-out payment liability, which is included in consideration payable for acquisition of business in the Consolidated Balance Sheets. Refer to Note 4, Acquisitions, to the audited consolidated financial statements for further details on the USAA AMCO Acquisition.

### Business Highlights in 2019

Assets under management:

- AUM at December 31, 2019 grew by $99.1 billion, or approximately 188%, to $151.8 billion from $52.8 billion at December 31, 2018, primarily driven by $81.1 billion of acquired assets. We generated $32.1 billion in gross flows and $1.9 billion in positive net inflows for the year ended December 31, 2019, compared to $14.1 billion in gross flows and $2.4 billion of negative net outflows for the same period in 2018. We experienced $16.1 billion in market appreciation for the year ended December 31, 2019 compared to $6.6 billion in market depreciation for the same period in 2018.
- In 2019, our VictoryShares ETF platform exceeded the $5.0 billion AUM milestone.
- We were ranked 7th in “Barron’s Top Fund Families” for the five-year period and 10th for the 10-year period ended December 31, 2019. We ranked 17th overall on a one-year basis for 2019.

Investment performance:

- **Legacy Victory Capital:** 25 of our Legacy Victory Capital mutual funds and ETFs had overall Morningstar ratings of four or five stars and 74% of our fund and ETF AUM were rated four or five stars overall by Morningstar. 77% of our strategies by AUM had investment returns in excess of their respective benchmarks over a one-year period, 79% over a three-year period, 73% over a five-year period and 92% over a ten-year period. On an equal-weighted basis, 48% of our strategies have outperformed their respective benchmarks over a one-year period, 63% over a three-year period, 62% over a five-year period and 82% over a ten-year period.
- **USAA Fixed Income:** 11 of our USAA Fixed Income mutual funds and ETFs had overall Morningstar ratings of four or five stars and 96% of our fund and ETF AUM were rated four or five stars overall by Morningstar. 85% of our strategies by AUM had investment returns in excess of their respective benchmarks over a one-year period, 85% over a three-year period, 88% over a five-year period and 95% over a ten-year period. On an equal-weighted basis, 71% of our strategies have outperformed their respective benchmarks over a one-year period, 67% over a three-year period, 83% over a five-year period and 91% over a ten-year period.
- **Total Victory Capital:** 44 of our Total Victory Capital mutual funds and ETFs had overall Morningstar ratings of four or five stars and 68% of our fund and ETF AUM were rated four or five stars overall by Morningstar. 67% of our strategies by AUM had investment returns in excess of their respective benchmarks over a one-year period, 64% over a three-year period, 60% over a five-year period and 71% over a ten-year period. On an equal-weighted basis, 43% of our strategies have outperformed their respective benchmarks over a one-year period, 51% over a three-year period, 53% over a five-year period and 66% over a ten-year period.

Financial highlights:

- Total revenue for the year ended December 31, 2019 was $612.4 million compared to $413.4 million for the year ended December 31, 2018. Net income was $92.5 million and $63.7 million, respectively, for the year ended December 31, 2019 and 2018.
- Earnings per diluted share were $1.26 for the year ended December 31, 2019 compared to $0.90 for the same period in 2018. Adjusted net income with tax benefit per diluted share was $2.63 and $1.64, respectively, for the year ended December 31, 2019 and 2018. Refer to “Supplemental Non‑GAAP Financial Information” for more information about how we calculate Adjusted Net Income and a reconciliation of net income to Adjusted Net Income.
- Adjusted EBITDA was $268.8 million or 43.9% for the year ended December 31, 2019 compared to $160.2 million or 38.7% for the year ended December 31, 2018. Refer to “Supplemental Non‑GAAP Financial Information” for more information about how we calculate Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA.
- Adjusted Net Income was $172.8 million for the year ended December 31, 2019 compared to $102.3 million for the year ended December 31, 2018. Refer to “Supplemental Non‑GAAP Financial Information” for more information about how we calculate Adjusted Net Income and a reconciliation of net income to Adjusted Net Income.
- Subsequent to December 31, 2019, the Company repriced its term loan reducing the interest rate by 75 basis points for an estimated annual interest rate expense savings of approximately $7.0 million, or 13.5%.

### Key Performance Indicators

The following table presents the key performance indicators we focus on when reviewing our results:

*($ in millions, except for basis points and percentages)*

|  | Year Ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| AUM at period end | $151,832 | $52,763 | $61,771 |
| Average AUM | 102,719 | 61,390 | 57,823 |
| Gross flows | 32,112 | 14,130 | 16,929 |
| Net flows (excluding Diversified)(1) | 1,860 | (2,427) | (853) |
| Total revenue | 612.4 | 413.4 | 409.6 |
| Revenue on average AUM | 59.6 bps | 67.3 bps | 70.8 bps |
| Net income | 92.5 | 63.7 | 25.8 |
| Adjusted EBITDA(2) | 268.8 | 160.2 | 149.1 |
| Adjusted EBITDA margin(2)(3) | 43.9% | 38.7% | 36.4% |
| Adjusted Net Income(3) | 172.8 | 102.3 | 62.0 |
| Tax benefit of goodwill and acquired intangibles(4) | 20.3 | 13.3 | 19.7 |

(1) Total net flows including Diversified Equity Management (“Diversified”) were ($1,860), ($2,427) and ($1,471) for the years ended December 31, 2019, 2018, and 2017, respectively. Assets managed by Diversified were transferred to Munder on May 15, 2017.

(2) Our management uses Adjusted EBITDA and Adjusted Net Income to measure the operating profitability of the business. These measures eliminate the impact of one‑time acquisition, restructuring and integration costs and demonstrate the ongoing operating earnings metrics of the business. These measures are explained in more detail and reconciled to net income calculated in accordance with GAAP in “Supplemental Non‑GAAP Financial Information.”

(3) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenue.

(4) Represents the tax benefits associated with deductions allowed for intangible assets and goodwill generated from prior acquisitions in which we received a step‑up in basis for tax purposes. Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15‑year period. The tax benefit from amortization on these assets is included to show the full economic benefit of deductions for all acquired intangibles with a step‑up in tax basis. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets and goodwill provide us with a significant supplemental economic benefit. On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act significantly revised the U.S. corporate income tax law by, among other things, decreasing the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The reduction in the federal corporate income tax rate reduced the tax benefit of goodwill and acquired intangible assets beginning in 2018.

### Assets Under Management

Our profitability is largely affected by the level and composition of our AUM (including asset class and distribution channel) and the effective fee rates on our products. The amount and composition of our AUM are, and will continue to be, influenced by a number of factors, including; (i) investment performance, including fluctuations in the financial markets and the quality of our investment decisions; (ii) client flows into and out of our various strategies and investment vehicles; (iii) industry trends toward products or strategies that we either do or do not offer; (iv) our ability to attract and retain high quality investment, distribution, marketing and management personnel; (v) our decision to close strategies or limit growth of assets in a strategy when we believe it is in the best interest of our clients or conversely to re‑open strategies in part or entirely; and (vi) general investor sentiment and confidence. Our goal is to establish and maintain a client base that is diversified by Franchise and Solutions, asset class, distribution channel and vehicle.

#### Valuation of Assets Under Management

The fair value of assets under management of the Victory Funds, USAA Funds and VictoryShares is primarily determined using quoted market prices or independent third party pricing services or broker price quotes. In limited circumstances, a quotation or price evaluation is not readily available from a pricing service. In these cases, pricing is determined by management based on a prescribed valuation process that has been approved by the directors/trustees of the sponsored products. The same prescribed valuation process is used to price securities in separate accounts and other vehicles for which a quotation or price evaluation is not readily available from a pricing service. For the periods presented, a de minimis amount of the AUM was priced in this manner.

**AUM by Asset Class –** the following table presents our AUM by asset class as of the dates indicated:

*(in millions)*

|  | As of December 31, 2019(1) | 2018 | 2017 | 2016(2) | 2015(3) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Fixed Income | $37,973 | $6,836 | $7,551 | $7,726 | $5,058 |
| Solutions | 31,649 | 3,767 | 3,028 | 1,575 | 953 |
| U.S. Mid Cap Equity | 26,347 | 20,019 | 25,185 | 20,083 | 12,401 |
| U.S. Small Cap Equity | 17,346 | 12,948 | 15,308 | 14,090 | 6,500 |
| U.S. Large Cap Equity | 14,091 | 3,759 | 4,789 | 5,921 | 5,763 |
| Global / Non-U.S. Equity | 12,603 | 4,610 | 4,105 | 3,460 | 2,114 |
| Other | 236 | 824 | 1,805 | 2,111 | 322 |
| **Total Long-Term Assets** | **$140,245** | **$52,763** | **$61,771** | **$54,966** | **$33,111** |
| Money Market | 11,587 | — | — | — | — |
| **Total** | **$151,832** | **$52,763** | **$61,771** | **$54,966** | **$33,111** |

(1) Includes the impact of the USAA AMCO Acquisition, which closed on July 1, 2019, increasing our AUM by $81.1 billion inclusive of managed portfolio assets invested through USAA’s brokerage business. We did not acquire the USAA brokerage business. As of December 31, 2019, these managed portfolio assets totaled $9.9 billion.

(2) Includes the impact of the RS Acquisition, which closed on July 29, 2016, and increased our AUM by $16.7 billion.

(3) Includes the impact of the CEMP Acquisition, which closed on April 30, 2015, and increased our AUM by $1.0 billion.

**Asset Flows by Asset Class –** the following table summarizes our asset flows by asset class for the periods indicated:

*(in millions)*

| Year Ended December 31, 2019 | U.S. Mid Cap Equity | U.S. Small Cap Equity | Fixed Income | U.S. Large Cap Equity | Global / Non-U.S. Equity | Solutions | Other | Total Long-term | Money Market | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross client cash inflows | $20,019 | $12,948 | $6,836 | $3,759 | $4,610 | $3,767 | $823 | $52,763 | $— | $52,763 |
| Gross client cash inflows | 5,663 | 3,338 | 6,489 | 480 | 1,457 | 5,696 | 171 | 23,293 | 8,820 | 32,112 |
| Gross client cash outflows | (6,663) | (4,194) | (4,186) | (1,419) | (1,538) | (3,079) | (375) | (21,453) | (8,800) | (30,252) |
| Net client cash flows | (1,000) | (856) | 2,303 | (939) | (81) | 2,617 | (204) | 1,840 | 20 | 1,860 |
| Market appreciation / (depreciation) | 5,511 | 3,728 | 1,158 | 1,263 | 1,609 | 2,739 | (29) | 15,980 | 85 | 16,065 |
| Net transfers | 1,817 | 1,526 | 27,677 | 10,007 | 6,465 | 22,525 | (356) | 69,662 | 11,482 | 81,143 |
| Ending AUM | $26,347 | $17,346 | $37,973 | $14,091 | $12,603 | $31,649 | $236 | $140,245 | $11,587 | $151,832 |
| **Year Ended December 31, 2018** |  |  |  |  |  |  |  |  |  |  |
| Beginning AUM | $25,185 | $15,308 | $7,551 | $4,789 | $4,105 | $3,028 | $1,805 | $61,771 | $— | $61,771 |
| Gross client cash inflows | 4,530 | 3,198 | 1,514 | 259 | 2,488 | 1,713 | 428 | 14,130 | — | 14,130 |
| Gross client cash outflows | (7,207) | (3,762) | (2,303) | (848) | (1,003) | (588) | (846) | (16,557) | — | (16,557) |
| Net client cash flows | (2,677) | (564) | (789) | (589) | 1,485 | 1,125 | (418) | (2,427) | — | (2,427) |
| Market appreciation / (depreciation) | (2,485) | (1,792) | 67 | (455) | (972) | (426) | (510) | (6,573) | — | (6,573) |
| Net transfers | (4) | (4) | 7 | 14 | (8) | 40 | (53) | (8) | — | (8) |
| Ending AUM | $20,019 | $12,948 | $6,836 | $3,759 | $4,610 | $3,767 | $824 | $52,763 | $— | $52,763 |
| **Year Ended December 31, 2017** |  |  |  |  |  |  |  |  |  |  |
| Beginning AUM | $20,083 | $14,090 | $7,726 | $5,921 | $3,460 | $1,575 | $2,111 | $54,965 | $— | $54,965 |
| Gross client cash inflows | 8,622 | 3,613 | 1,777 | 230 | 924 | 1,342 | 421 | 16,929 | — | 16,929 |
| Gross client cash outflows | (7,299) | (4,722) | (2,240) | (1,702) | (1,333) | (213) | (891) | (18,400) | — | (18,400) |
| Net client cash flows | 1,323 | (1,109) | (462) | (1,472) | (410) | 1,129 | (470) | (1,471) | — | (1,471) |
| Market appreciation / (depreciation) | 3,778 | 2,327 | 388 | 347 | 1,073 | 352 | 106 | 8,372 | — | 8,372 |
| Net transfers | 1 | — | (101) | (7) | (18) | (28) | 57 | (95) | — | (95) |
| Ending AUM | $25,185 | $15,308 | $7,551 | $4,789 | $4,105 | $3,028 | $1,805 | $61,771 | $— | $61,771 |

**AUM by Distribution Channel –** the following table presents our AUM by distribution channel as of the dates indicated:

*(in millions)*

|  | As of December 31, 2019 Amount | % of total | 2018 Amount | % of total | 2017 Amount | % of total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Member | $74,118 | 49% | $— | —% | $— | —% |
| Institutional | 39,851 | 26% | 29,731 | 56% | 35,695 | 58% |
| Retail | 37,863 | 25% | 23,032 | 44% | 26,076 | 42% |
| Total AUM(1) | $151,832 | 100% | $52,763 | 100% | $61,771 | 100% |

(1) The allocation of AUM by distribution channel involves the use of estimates and the exercise of judgment.

**Assets Flows by Vehicle –** the following table summarizes our asset flows by vehicle for the periods indicated:

*(in millions)*

| Year Ended December 31, 2019 | Mutual Funds(1) | ETFs(2) | Separate Accounts and Other Vehicles(3) | Total |
| --- | ---: | ---: | ---: | ---: |
| Beginning AUM | $30,492 | $2,956 | $19,315 | $52,763 |
| Gross client cash inflows | 21,560 | 843 | 9,709 | 32,112 |
| Gross client cash outflows | (25,239) | (914) | (4,099) | (30,252) |
| Net client cash flows | (3,679) | (71) | 5,610 | 1,860 |
| Market appreciation / (depreciation) | 10,990 | 544 | 4,531 | 16,065 |
| Net transfers | 80,802 | 782 | (441) | 81,143 |
| Ending AUM | $118,605 | $4,213 | $29,014 | $151,832 |
| **Year Ended December 31, 2018** |  |  |  |  |
| Beginning AUM | $37,967 | $2,250 | $21,555 | $61,771 |
| Gross client cash inflows | 9,629 | 1,401 | 3,100 | 14,130 |
| Gross client cash outflows | (12,781) | (341) | (3,435) | (16,557) |
| Net client cash flows | (3,152) | 1,060 | (335) | (2,427) |
| Market appreciation / (depreciation) | (4,312) | (354) | (1,907) | (6,573) |
| Net transfers | (11) | — | 3 | (8) |
| Ending AUM | $30,492 | $2,956 | $19,315 | $52,763 |
| **Year Ended December 31, 2017** |  |  |  |  |
| Beginning AUM | $33,975 | $906 | $20,085 | $54,965 |
| Gross client cash inflows | 11,922 | 1,111 | 3,896 | 16,929 |
| Gross client cash outflows | (13,259) | (20) | (5,121) | (18,400) |
| Net client cash flows | (1,337) | 1,091 | (1,225) | (1,471) |
| Market appreciation / (depreciation) | 5,427 | 253 | 2,692 | 8,372 |
| Net transfers | (98) | — | 3 | (95) |
| Ending AUM | $37,967 | $2,250 | $21,555 | $61,771 |

(1) Includes institutional and retail share classes and Variable Insurance Products or VIP funds.

(2) Excludes assets managed for other proprietary product (i.e. funds of funds) in order to adjust for double counting.

(3) Includes collective trust funds, wrap program separate accounts and unified managed accounts or UMAs.

**December 31, 2019 AUM –** Our total AUM at December 31, 2019 was $151.8 billion, an increase of $99.1 billion, or 187.8%, compared to $52.8 billion at December 31, 2018. The change in AUM during 2019 reflects $81.1 billion of acquired assets, $1.9 billion of positive net inflows, as well as $16.1 billion in positive market movement. Short-term money market assets accounted for $11.6 billion, or 7.6% of the total AUM at December 31, 2019.

The net inflows were driven by $2.6 billion in our Solutions Platform and $2.3 billion in our fixed income strategies, partially offset by net outflows of $1.0 billion in our U.S. mid cap equity strategies, $0.9 billion in our U.S. large cap equity strategies, $0.9 billion in our U.S. small cap equity strategies, $0.2 billion in other and $0.1 billion in our global/non-U.S equity strategies.

**December 31, 2018 AUM –** Our total AUM at December 31, 2018 was $52.8 billion, a decrease of $9.0 billion, or 14.6%, compared to $61.8 billion at December 31, 2017, reflected by $2.4 billion of negative net outflows and $6.6 billion in negative market movement.

The net outflows were primarily a result of $2.7 billion in our U.S. mid cap equity strategies, $0.8 billion in our fixed income strategies, $0.6 billion in our U.S. large cap equity strategies, $0.6 billion in our U.S. small cap equity strategies and $0.4 billion in our other strategies, partially offset by net inflows of $1.5 billion in our global equity strategies and $1.1 billion in our Solutions Platform.

**December 31, 2017 AUM –** Our total AUM at December 31, 2017 was $61.8 billion, an increase of $6.8 billion, or 12.3%, compared to $55.0 billion at December 31, 2016. The change in AUM reflects $1.5 billion of negative net outflows and $8.4 billion in positive market movement.

The net outflows were primarily a result of $1.5 billion in our U.S. large cap equity strategies, $1.1 billion in our U.S. small cap equity strategies, $0.5 billion in our other strategies, $0.4 billion in our global equity strategies and $0.4 billion in our fixed income strategies, partially offset by net inflows of $1.3 billion in our U.S. mid cap equity strategies and $1.1 billion in our Solutions Platform.

### GAAP Results of Operations

Our GAAP revenues principally consist of; (i) investment management fees, which are based on our overall weighted average fee rate charged to our clients and our level of AUM and (ii) fund administration and distribution fees, which are asset‑based fees earned from open‑end mutual funds for administration and distribution services. Fund administration and fund distribution fees also include fund transfer agent fees (related to the USAA Funds), which are based on a contractual rate applied to average AUM or the number of accounts in these funds.

The Company has contractual arrangements with third parties to provide certain advisory, administration, transfer agent and distribution services. Management considers whether we are acting as the principal service provider or as an agent to determine whether revenue should be recorded based on the gross amount payable by the customer or net of payments to third-party service providers, respectively. Victory is considered a principal service provider if we control the service that is transferred to the customer. We are considered an agent when we arrange for the service to be provided by another party and do not control the service.

**Investment Management Fees –** Investment management fees are earned from managing clients’ assets. Our investment management fee revenue fluctuates based on a number of factors, including the total value of our AUM, the composition of AUM across investment strategies and vehicles, changes in the investment management fee rates on our products and the extent to which we enter into fee arrangements that differ from our standard fee schedule. Investment management fees are earned based on a percentage of AUM as delineated in the respective investment management agreements. Our investment management fees are calculated based on daily average AUM, monthly average AUM or point in time AUM.

**Fund Administration and Distribution Fees –** Fund administration fees are asset‑based fees earned from open‑end funds for administration services. Fund administration fees fluctuate based on the level of average open‑end fund AUM and the fee rates charged for these services.

Fund distribution fees are asset‑based fees earned from open‑end funds for distribution services. Fund distribution fees fluctuate based on the level of average open‑end fund AUM and the composition of those assets across share classes that pay varying levels of fund distribution fees.

The Company has contractual arrangements with a third party to provide certain sub-administration services. We are the primary obligor under the contracts with the Victory Funds, USAA Funds and VictoryShares and have the ability to select the service provider and establish pricing. As a result, fund administration fees and sub-administration expenses are recorded on a gross basis. VCA has contractual arrangements with third parties to provide certain distribution services. VCA is the primary obligor under the contracts with the Victory Funds and USAA Funds and has the ability to select the service provider and establish pricing. Substantially all of VCA’s revenue is recorded gross of payments made to third parties.

Fund transfer agent fees are earned for providing mutual fund shareholder services. Transfer agent fees fluctuate based on the level of average AUM and the number of accounts in the USAA Funds.

The Company has contractual arrangements with a third party to provide certain sub-transfer agent services. We are the primary obligor under the transfer agency contracts with the USAA Funds and have the ability to select the service provider and establish pricing. As a result, fund transfer agent fees and sub-transfer agent expenses are recorded on a gross basis.

#### GAAP Expenses

Our GAAP expenses principally consist of; (i) personnel compensation and benefits; (ii) distribution and other asset‑based expenses; (iii) general and administrative expenses; (iv) depreciation and amortization charges; and (v) acquisition‑related expenses comprising of changes in the fair value of contingent acquisition payments and restructuring and acquisition costs.

**Personnel Compensation and Benefits –** Personnel compensation and benefits is our most significant category of expense. Personnel compensation and benefits consists of (i) salaries, payroll related taxes and employee benefits, (ii) incentive compensation, (iii) sales‑based compensation, (iv) compensation expense related to equity awards granted to employees and directors and (v) acquisition‑related compensation in the form of cash retention bonuses.

Incentive compensation is the largest component of the total compensation of our employees. The aggregate amount of cash incentive compensation is funded by a pool that is based on a percentage of total Company earnings (before taking into account incentive compensation). This incentive pool is used to pay the investment teams a percentage of the revenue earned by their respective Franchise on a quarterly basis. This incentive pool is also used to pay incentive compensation to senior management and other non‑investment employees on an annual basis. Incentive compensation paid to senior management and to other non‑investment employees is discretionary and subjectively determined based on Company and individual performance and the total amount of the incentive compensation pool.

**Distribution and Other Asset‑based Expenses –** Distribution and other asset‑based expenses consists of (i) broker‑dealer distribution fees and platform distribution fees, (ii) fund expense reimbursements to affiliates and (iii) sub‑administration, sub-transfer agent, sub‑advisory expenses and middle‑office expenses.

Broker‑dealer distribution fees are paid by VCA as the broker‑dealer for the Victory Funds and USAA Funds to third‑party distributors. The Victory Funds and USAA Funds pay VCA for distribution services and VCA, in turn, pays third‑party distributors.

Platform distribution fees are paid by VCM as the investment adviser to the Victory Funds and USAA Funds. Platform distribution fees are paid to financial advisors, retirement plan providers and intermediaries for servicing and administering accounts invested in shares of the Victory Funds and USAA Funds. Distribution fees typically vary based on the level of AUM and the composition of those assets across share classes.

Fund expense reimbursements (contra revenue) result from VCM, as investment adviser for the Victory Funds, VictoryShares and USAA Funds, agreeing to cap the annual operating expenses for certain share classes of the Victory Funds, USAA Funds and VictoryShares. VCM has contractually agreed to reimburse the Victory Funds, USAA Funds and VictoryShares for expenses in excess of these caps but may recoup these reimbursements for a period of time if the applicable Fund’s share class expenses and/or VictoryShares ETF expenses fall below the cap.

Sub‑administration, sub-transfer agent, sub‑advisory and middle‑office expenses consist of fees paid to our sub‑administrators of the Victory Funds, VictoryShares and USAA Funds, fees paid to our sub-transfer agent for the USAA Funds, fees paid to sub‑advisers on certain Victory Funds and USAA Funds and fees paid to vendors to which we outsource middle‑office functions.

- VCM acts as the administrator to the Victory Funds, VictoryShares and USAA Funds. VCM has hired a sub‑administrator, the fees for which are captured in sub‑administration expense. As administrator, VCM supervises the operations of the Victory Funds, VictoryShares and USAA Funds, including the services provided by the sub‑administrators. The sub‑administrators are paid through a contractual arrangement based on a percentage of the average fund AUM.
- VCTA acts as the transfer agent to the USAA Funds. VCTA has hired a sub-transfer agent, the fees for which are captured in sub-administration expense. As transfer agent, VCTA oversees the services provided by the sub-transfer agent. The sub-transfer agent is paid through a contractual arrangement based on a percentage of average fund AUM.
- VCM, as the investment adviser for the Victory Funds and USAA Funds, has hired unaffiliated sub‑advisers to manage funds for which we do not have in‑house capabilities. The fees paid to the sub‑advisers are contractual based on a percentage of assets that they manage.
- We have outsourced middle‑office operations to achieve a scalable operational infrastructure that utilizes a variable‑cost model. We have selected to partner with top‑tier vendors who perform trade operations, portfolio accounting and performance measurement with oversight from our operations team. The fees paid to these vendors are variable and structured based on the number of accounts, assets and specific services performed.

**General and Administrative Expenses –** General and administrative expenses primarily consist of investment research and technology costs, professional and marketing fees, travel, rent and insurance expenses.

**Depreciation and Amortization –** Depreciation and amortization expense consists primarily of the depreciation of property and equipment as well as the amortization of acquired intangibles that have a definite life. These intangibles include customer relationships, investment advisory contracts, intellectual property and non‑compete clauses acquired in connection with a business or asset acquisition. Both depreciation and amortization are recorded ratably over the assets’ useful lives.

**Acquisition‑Related Costs –** Acquisition‑related costs include legal fees, advisory services, mutual fund proxy voting costs and other one‑time expenses related to acquisitions.

**Restructuring and Integration Costs –** Restructuring and integration costs include costs incurred in connection with business combinations, including the increase in the fair value of contingent acquisition payments, asset purchases and changes in business strategy. These include severance expenses related to one‑time benefit arrangements, contract termination and other costs to integrate investment platforms, products and personnel into existing systems, processes and service provider arrangements and restructuring the business to capture operating expense synergies.

Other non‑operating items of income and expense consist of; (i) interest income and other income (expense); (ii) interest expense and other financing costs; (iii) loss on debt extinguishment; and (iv) income tax (expense) benefit.

**Interest Income and Other Income (Expense) –** Interest income and other income (expense) consists primarily of interest income, gains (losses) on investments and dividend income on investments.

**Interest Expense and Other Financing Costs –** Interest expense and other financing costs consists primarily of interest expense attributable to long‑term debt. Refer to “Liquidity and Capital Resources” for more information.

**Loss on Debt Extinguishment –** Loss on debt extinguishment consists of the write-off of unamortized debt issuance costs and unamortized debt discount as a result of debt refinancing and the acceleration of the paydown of debt principal.

**Income Tax Expense –** The provision for income taxes includes U.S. federal, state and local taxes, and foreign income taxes payable by certain of our subsidiaries. The effective tax rate is primarily driven by state and local taxes and permanent differences related to meals and entertainment. The portion of the effective income tax rate attributable to state and local income taxes varies from year to year depending on amounts of income apportioned to each jurisdiction, whether we file income tax returns on a unitary or separate return basis and with changes in tax laws. On December 22, 2017, the Tax Act was enacted and significantly revised the U.S. corporate income tax law by, among other things, decreasing the federal corporate income tax rate from 35% to 21% effective January 1, 2018.

The following table presents our GAAP results of operations for the years ended December 31, 2019, 2018 and 2017.

| Revenue | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 |
| --- | ---: | ---: | ---: |
| Investment management fees | $466,802 | $352,683 | $343,811 |
| Fund administration and distribution fees | 145,571 | 60,729 | 65,818 |
| **Total revenue** | **612,373** | **413,412** | **409,629** |
| **Expenses** |  |  |  |
| Personnel compensation and benefits | 179,809 | 145,880 | 144,111 |
| Distribution and other asset-based expenses | 146,622 | 94,680 | 103,439 |
| General and administrative | 46,568 | 30,005 | 33,996 |
| Depreciation and amortization | 23,873 | 23,277 | 29,910 |
| Change in value of consideration payable for acquisition of business | 19,886 | (37) | (294) |
| Acquisition-related costs | 22,317 | 4,346 | 2,094 |
| Restructuring and integration costs | 8,678 | 742 | 6,205 |
| **Total operating expenses** | **447,753** | **298,893** | **319,461** |
| **Income from operations** | **164,620** | **114,519** | **90,168** |
| **Other income (expense)** |  |  |  |
| Interest income and other income (expense) | 6,829 | (2,856) | (2,913) |
| Interest expense and other financing costs | (40,901) | (20,694) | (48,467) |
| Loss on debt extinguishment | (9,860) | (6,058) | (330) |
| **Total other expense, net** | **(43,932)** | **(29,608)** | **(51,710)** |
| **Income before income taxes** | **120,688** | **84,911** | **38,458** |
| **Income tax expense** | **(28,197)** | **(21,207)** | **(12,632)** |
| **Net income** | **$92,491** | **$63,704** | **$25,826** |
| **Earnings per share of common stock** |  |  |  |
| Basic | $1.37 | $0.96 | $0.47 |
| Diluted | $1.26 | $0.90 | $0.43 |
| **Weighted average number of shares outstanding** |  |  |  |
| Basic | 67,616 | 66,295 | 54,931 |
| Diluted | 73,466 | 70,511 | 59,577 |
| **Dividends declared per share of common stock** | $0.10 | $— | $2.42 |

### Investment Management Fees

**2019 compared to 2018 –** Investment management fees increased $114.1 million, or 32.4%, to $466.8 million in 2019 from $352.7 million in 2018 due to an increase in average AUM year over year, partially offset by a decrease in the realized fee rate due to a shift in asset mix. Average AUM was $102.7 billion in 2019 compared to $61.4 billion in 2018, mostly attributable to the acquired assets in the USAA AMCO Acquisition.

The Company adopted Accounting Standards Update (“ASU”) 2014-09 on January 1, 2019. Mutual fund and ETF waivers and expense reimbursements are recorded as a reduction to investment management fees under the new standard ($18.7 million in 2019). The comparative periods have not been restated and continue to be reported under the legacy guidance, as permitted by the Financial Accounting Standards Board (the “FASB”).

**2018 compared to 2017 –** Investment management fees increased $8.9 million, or 2.5%, to $352.7 million in 2018 from $343.8 million in 2017 due to the same factors related to average AUM and shift in asset mix as discussed above in the “2019 compared to 2018” section. Average AUM was $61.4 billion in 2018 compared to $57.8 billion in 2017.

### Fund Administration and Distribution Fees

**2019 compared to 2018 –** Fund administration and distribution fees totaled $145.6 million in 2019, an increase of $84.8 million, or 139.7%, from $60.7 million in 2018. Fund administration fees increased by $48.7 million, or 210.2%, due to an increase in average AUM year over year, mostly attributable to the USAA AMCO Acquisition and the addition of $42.8 million in transfer agent fees with the USAA Funds, partially offset by a reduction in fund distribution fees due to a shift in the mix of assets to lower 12b-1 paying share classes. Transfer agent fees represent a new revenue stream for VCTA in accordance with a contract with the USAA Funds.

**2018 compared to 2017 –** Fund administration and distribution fees totaled $60.7 million in 2018, a decrease of $5.1 million, or 7.7%, from $65.8 million in 2017, due to a decrease in fund distribution fees partially offset by an increase in fund administration fees. The decrease in fund distribution fees was due to a shift in the mix of assets to lower 12b-1 paying share classes, partially offset by an increase in average AUM in 2018. The increase in fund administration fees was due to higher mutual fund and ETF average daily assets.

### Personnel Compensation and Benefits

The following table presents the components of GAAP compensation expense for the year ended December 31, 2019, 2018 and 2017:

*(in thousands)*

|  | Year Ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Salaries, payroll related taxes and employee benefits | $62,298 | $45,820 | $49,745 |
| Incentive compensation | 85,614 | 71,273 | 65,984 |
| Sales-based compensation(1) | 13,973 | 13,549 | 15,051 |
| Equity awards granted to employees and directors(2) | 16,303 | 15,238 | 11,752 |
| Acquisition and transaction-related compensation | 1,621 | — | 1,579 |
| **Total personnel compensation and benefits expense** | **$179,809** | **$145,880** | **$144,111** |

(1) Represents sales‑based commissions paid to our distribution teams. Sales‑based compensation varies based on gross and net client cash flows and revenue earned on sales.

(2) Share-based compensation typically vests over several years based on service and the achievement of specific business and financial targets. The value of share-based compensation is recognized as compensation expense over the vesting period.

**2019 compared to 2018 –** Personnel compensation and benefits were $179.8 million in 2019, an increase of $33.9 million, or 23.3%, from $145.9 million in 2018 primarily attributable to an increase in headcount due to the USAA AMCO Acquisition, as well as a year over year increase in deferred compensation plan liabilities from favorable market action. The increase in incentive compensation was due to higher pre-incentive compensation earnings while performance award vestings in 2019 contributed to the increase in share-based compensation. The Company incurred $1.6 million in acquisition and transaction-related compensation expense in 2019 with no such expense incurred during the previous year.

**2018 compared to 2017 –** Personnel compensation and benefits increased by $1.8 million, 1.2%, to $145.9 million in 2018 from $144.1 million in 2017. The slight increase was due to an increase in incentive compensation, partially offset by a year over year decrease in deferred compensation plan liabilities from unfavorable market action. Share-based compensation increased in 2018 due to the IPO and pre-existing awards, while sales‑based compensation decreased as a result of lower gross flows.

### Distribution and Other Asset‑based Expenses

The following table presents the components of distribution and other asset‑based expenses for the year ended December 31, 2019, 2018 and 2017:

*(in thousands)*

|  | Year Ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Broker-dealer distribution fees | $27,753 | $34,423 | $40,521 |
| Platform distribution fees | 90,706 | 27,177 | 29,701 |
| Fund expense reimbursements | — | 12,902 | 11,896 |
| Sub-administration | 11,115 | 6,763 | 5,754 |
| Sub-advisory | 8,399 | 6,452 | 8,352 |
| Middle-office | 8,649 | 6,963 | 7,215 |
| **Total distribution and other asset-based expenses** | **$146,622** | **$94,680** | **$103,439** |

**2019 compared to 2018 –** Distribution and other asset‑based expenses are primarily based on AUM. Distribution and other asset-based expenses were $146.6 million in 2019, an increase of $51.9 million, or 54.9%, from $94.7 million in 2018, primarily due to the USAA AMCO Acquisition. The acquisition introduced new operating expenses that the Company did not incur prior to the acquisition, such as platform distribution costs paid to third parties and USAA, sub-transfer agent service costs and 529 College Savings Plan expenses.

Fund expense reimbursements declined by $12.9 million due to the change in the classification of such reimbursements with the adoption of ASU 2014-09 on January 1, 2019. Mutual fund and ETF waivers and expense reimbursements are recorded as a reduction to investment management fees under ASU 2014-09, whereas under legacy revenue recognition guidance these were recorded as a distribution and other asset-based expense. The comparative periods have not been restated and continue to be reported under the legacy guidance, as permitted by the FASB. Broker-dealer distribution fees decreased due to the shift in the mix of assets to lower and non 12b-1 paying share classes.

**2018 compared to 2017 –** Distribution and other asset-based expenses decreased by $8.8 million, or 8.5%, to $94.7 million in 2018, from $103.4 million in 2017. Broker-dealer distribution fees and platform distribution fees decreased due to the mix of mutual fund assets and share classes.

### General and Administrative Expenses

**2019 compared to 2018 –** General and administrative expenses were $46.6 million in 2019 compared to $30.0 million in 2018. The increase of $16.6 million, or 55.2%, was primarily due to the addition of transition service agreement costs related to the USAA AMCO Acquisition, as well as one-time debt repricing expenses related to the 2019 Credit Agreement.

**2018 compared to 2017 –** General and administrative expenses decreased by $4.0 million, or 11.7%, to $30.0 million in 2018, from $34.0 million in 2017, driven by operational efficiencies.

### Depreciation and Amortization

**2019 compared to 2018 –** Depreciation and amortization increased by $0.6 million, or 2.6%, to $23.9 million in 2019, from $23.3 million in 2018, due to the addition of definite-lived intangible assets acquired in connection with the USAA AMCO Acquisition, partially offset by definite-lived assets acquired in connection with the CEMP Acquisition and the management-led buyout with Crestview GP becoming fully amortized in 2018.

**2018 compared to 2017 –** Depreciation and amortization decreased to $23.3 million in 2018, from $29.9 million in 2017, primarily due to certain definite-lived intangible assets acquired in connection with the management-led buyout with Crestview GP becoming fully amortized in 2018.

### Acquisition‑Related Costs

**2019 compared to 2018 –** Acquisition-related costs were $22.3 million and $4.3 million, respectively, in 2019 and 2018, with the increase primarily due to the USAA AMCO Acquisition which closed on July 1, 2019. The acquisition-related expenses include various transaction costs such as legal and filing fees and other professional fees. On April 22, 2019, the Company and Harvest Volatility Management, LLC (“Harvest”) entered into an agreement to mutually terminate the purchase agreement entered into on September 21, 2018. Neither the Company nor Harvest was responsible for any termination fee to the other party as a result of the termination.

**2018 compared to 2017 –** Acquisition‑related costs increased by $2.2 million, or 107.5%, to $4.3 million in 2018, from $2.1 million in 2017, primarily due to costs incurred related to the USAA AMCO Acquisition and Harvest.

### Restructuring and Integration Costs

**2019 compared to 2018 –** Restructuring and integration costs were $8.7 million and $0.7 million, respectively, in 2019 and 2018, with the increase due to severance costs and integration and conversion costs related to the USAA AMCO Acquisition.

**2018 compared to 2017 –** Restructuring and integration costs decreased by $5.5 million, or 88.0%, to $0.7 million in 2018, from $6.2 million in 2017, primarily due to costs incurred in 2017 for contract breakage and asset write-offs associated with the integration of RS Investment Management Co. LLC (“RS Investments”).

### Interest Income and Other Income (Expense)

**2019 compared to 2018 –** Interest income and other income (expense) was income of $6.8 million in 2019, compared to expense of $2.9 million in 2018. The increase was collectively due to a (i) gain on sale of an equity method investment in Cerebellum of $2.9 million, (ii) higher yields on our cash invested in money market accounts and (iii) net unrealized gains on deferred compensation plan investments.

**2018 compared to 2017 –** Interest income and other income (expense) was expense of $2.9 million in both 2018 and 2017, and mainly consisted of net unrealized losses on deferred compensation plan investments.

### Interest Expense and Other Financing Costs

**2019 compared to 2018 –** Interest expense and other financing costs increased by $20.2 million, or 97.6%, to $40.9 million in 2019, from $20.7 million in 2018 due to the Company entering into the 2019 Credit Agreement, dated July 1, 2019, in conjunction with the USAA AMCO Acquisition. All indebtedness outstanding under the previous credit agreement was repaid and terminated as of July 1, 2019. Refer to Note 11, Debt, to the audited financial statements for further details on the 2019 Credit Agreement.

**2018 compared to 2017 –** Interest expense and other financing costs decreased by $20.8 million, or 57.3%, to $20.7 million in 2018, from $48.5 million in 2017 as a result of refinancing activities and the paydown of debt principal.

### Loss on Debt Extinguishment

**2019 compared to 2018 –** Loss on debt extinguishment was $9.9 million in 2019. The Company wrote-off unamortized debt issuance costs and unamortized debt discount due to (i) the termination of the previous credit agreement, dated February 2018 ($5.5 million) and (ii) accelerating the paydown of debt principal under the 2019 Credit Agreement ($4.4 million). The Company also paid down $148.0 million of debt in 2019 under the 2019 Credit Agreement. Refer to Note 11, Debt, to the audited financial statements for further details on the 2019 Credit Agreement. The Company incurred a $6.1 million loss on debt extinguishment in 2018 due to the termination of a previous credit agreement, dated October 2014.

**2018 compared to 2017 –** Loss on debt extinguishment was $6.1 million in 2018 as discussed above in the “2019 compared to 2018” section. The Company incurred a $0.3 million loss on debt extinguishment in 2017 due to the repricing of a previous term loan.

### Income Tax Expense

**2019 compared to 2018 –** Our effective tax rate was 23.4% and 25.0% in 2019 and 2018, respectively. The decrease in the effective tax rate was primarily due to higher excess tax benefits on share-based compensation net of expense related to recognizing a liability for unrecorded tax benefits. Refer to Note 10, Income Taxes, to the audited financial statements for further details on income taxes.

**2018 compared to 2017 –** Our effective tax rate was 25.0% and 32.8% in 2018 and 2017, respectively, with the year over year decrease due to a reduction in our effective tax rate in 2018 related to the Tax Act.

### Effects of Inflation

Inflation did not have a material effect on our consolidated results of operations. Inflationary pressures can result in increases to our cost structure, especially to the extent that large expense components such as compensation are impacted. To the degree that these expense increases are not recoverable or cannot be counterbalanced through price increases due to the competitive environment, our profitability could be negatively impacted. In addition, the value of the fixed income assets that we manage may be negatively impacted when inflationary expectations result in a rising interest rate environment. Declines in the values of AUM could lead to reduced revenues as investment management fees are generally earned as a percentage of AUM.

### Supplemental Non‑GAAP Financial Information

We report our financial results in accordance with GAAP. Our management uses non‑GAAP performance measures to evaluate the underlying operations of our business. Non‑GAAP financial measures are used to supplement GAAP results to provide a more complete understanding of the factors and trends affecting our business than GAAP results alone. Due to our acquisitive nature, there are a number of acquisition and restructuring related expenses included in GAAP measures that we believe distort the economic value of our organization and we believe that many investors use this information when assessing the financial performance of companies in the investment management industry. We have included these non‑GAAP measures to provide investors with the same financial metrics used by management to assess the operating performance of our Company.

Non‑GAAP measures should be considered in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Our non‑GAAP measures may differ from similar measures at other companies, even if similar terms are used to identify these measures. Specifically, we make use of the non‑GAAP financial measures “Adjusted EBITDA” and “Adjusted Net Income.”

The impact of the Tax Act lowered our combined statutory federal income tax rate plus an estimate for state, local and foreign income taxes from approximately 38% to 25% thus lowering our income tax expense beginning in calendar year 2018. The reduction in our combined statutory federal income tax rate plus an estimate for state, local and foreign income taxes from approximately 38% to 25% also reduced the tax benefit of goodwill and acquired intangible assets beginning in 2018.

The following table sets forth a reconciliation from GAAP financial measures to non‑GAAP measures for the periods indicated:

*(in thousands)*

| Reconciliation of non-GAAP financial measures: | Year Ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| **Net income (GAAP)** | **$92,491** | **$63,704** | **$25,826** |
| Income tax expense | (28,197) | (21,207) | (12,632) |
| **Income before income taxes** | **$120,688** | **$84,911** | **$38,458** |
| Interest expense(1) | 40,706 | 20,173 | 44,330 |
| Depreciation(2) | 2,995 | 2,956 | 3,561 |
| Other business taxes(3) | 1,484 | 1,505 | 1,887 |
| Amortization of acquisition-related intangible assets(4) | 20,878 | 20,321 | 26,349 |
| Share-based compensation(5) | 14,849 | 15,238 | 11,752 |
| Acquisition, restructuring and exit costs(6) | 56,751 | 6,389 | 15,041 |
| Debt issuance costs(7) | 13,119 | 7,807 | 6,035 |
| Pre-IPO governance expenses(8) | — | 138 | 1,248 |
| (Earnings) losses from equity method investments(9) | (2,683) | 730 | 427 |
| **Adjusted EBITDA** | **$268,787** | **$160,168** | **$149,088** |

*(in thousands)*

| Reconciliation of non-GAAP financial measures: | Year Ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| **Net income (GAAP)** | **$92,491** | **$63,704** | **$25,826** |
| Adjustments to reflect the operating performance of the Company: |  |  |  |
| i. Other business taxes(3) | 1,484 | 1,505 | 1,887 |
| ii. Amortization of acquisition-related intangible assets(4) | 20,878 | 20,321 | 26,349 |
| iii. Share-based compensation(5) | 14,849 | 15,238 | 11,752 |
| iv. Acquisition, restructuring and exit costs(6) | 56,751 | 6,389 | 15,041 |
| v. Debt issuance costs(7) | 13,119 | 7,807 | 6,035 |
| vi. Pre-IPO governance expenses(8) | — | 138 | 1,248 |
| Tax effect of above adjustments(10) | (26,770) | (12,849) | (23,678) |
| viii. Remeasurement of net deferred taxes (11) | — | — | (2,422) |
| **Adjusted Net Income** | **$172,802** | **$102,254** | **$62,038** |
| Tax benefit of goodwill and acquired intangibles(12) | $20,324 | $13,278 | $19,691 |

Adjustments made to GAAP Net Income to calculate Adjusted EBITDA and Adjusted Net Income, as applicable, are:

(1) Adding back interest paid on debt and other financing costs, net of interest income.

(2) Adding back depreciation on property and equipment.

(3) Adding back other business taxes.

(4) Adding back amortization expense on acquisition‑related intangible assets.

(5) Adding back share-based compensation associated with equity awards issued from pools created in connection with the management‑led buyout and various acquisitions and as a result of equity grants related to the initial public offering of our Class A common stock (the “IPO”).

(6) Adding back direct incremental costs of acquisitions and the IPO, including restructuring costs.

(7) Adding back debt issuance cost expense.

(8) Adding back pre-IPO governance expenses paid to the Company’s private equity partners that terminated as of the completion of the IPO

(9) Adjusting for (earnings) losses on equity method investments.

(10) Subtracting an estimate of income tax expense applied to the sum of the adjustments above.

(11) Remeasurement of our U.S. net deferred taxes resulting in a one-time income tax expense of $2.4 million in 2017 due to the Tax Act enacted on December 22, 2017.

(12) Represents the tax benefits associated with deductions allowed for intangibles and goodwill generated from acquisitions in which we received a step‑up in basis for tax purposes. Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15‑year period. The tax benefit from amortization on these assets is included to show the full economic benefit of deductions for all acquired intangibles with a step‑up in tax basis. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets and goodwill provide us with a significant supplemental economic benefit.

The following table presents the components of acquisition, restructuring and exit costs for the periods indicated:

*(in thousands)*

|  | Year Ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Acquisition-related costs | $22,317 | $4,346 | $2,094 |
| Change in value of consideration payable for acquisition of business | 19,886 | — | — |
| Restructuring and integration costs | 8,678 | 742 | 6,205 |
| General and administrative | 4,249 | 303 | 733 |
| Personnel compensation and benefits | 1,621 | — | 1,580 |
| Interest income and other income | — | 998 | 4,429 |
| **Total acquisition, restructuring and exit costs** | **$56,751** | **$6,389** | **$15,041** |

### Liquidity and Capital Resources

**Sources and Uses of Cash –** We generate strong cash flows from operations that allow us to meet our cash requirements. Our primary uses of cash include (i) repayment of our debt obligations, (ii) funding of acquisitions, (iii) payment of contingent consideration for previous acquisitions, and (iv) working capital needs. Cash flows from operations also allow us to meet certain other cash requirements such as quarterly cash dividends and the repurchase of our Class A common stock. We believe we have sufficient liquidity and capital resources to continue to paydown our debt obligations as well as to continue focusing on acquisition candidates that increase our size, scale, asset class and client diversification.

The following table presents our liquidity position as of December 31, 2019 and 2018:

*(in thousands)*

|  | December 31, 2019 | December 31, 2018 |
| --- | ---: | ---: |
| Cash and cash equivalents(1) | $37,121 | $51,491 |
| Accounts and other receivables(2) | 95,093 | 44,120 |
| Undrawn commitment on revolving credit facility(3) | 100,000 | 100,000 |
| Accounts and other payables(4) | (144,045) | (50,578) |

(1) We manage our cash balances in order to fund our day-to-day operations and invest excess cash into money market funds and other short-term investments.

(2) Our accounts receivables consist primarily of investment management, fund administrative and distribution fees that have been earned but not yet received from clients. We perform a review of our receivables on a monthly basis to access collectability.

(3) Revolving credit facility of $100.0 million at December 31, 2019 and 2018, which had $100.0 million undrawn as of both periods.

(4) Accounts and other payables consist primarily of various payables related to operations, transaction costs and interest payable on the term loan, as well as accrued compensation and benefits. Transaction costs consist of non-recurring transaction costs of $8.5 million and restructuring and integration costs of $3.0 million.

Excludes long-term debt, net due to the Company satisfying the required principal amortization of 1.00% per annum through the term loan, June 2026.

As previously noted, the USAA AMCO Acquisition introduced additional personnel expenses and new and additional operating expenses such as expenses related to a transfer services agreement with USAA, 529 College Savings Plan, and direct member channel expenses that the Company did not incur prior to the acquisition.

**2019 Credit Agreement –** In conjunction with the USAA AMCO Acquisition, the Company entered into the 2019 Credit Agreement, dated July 1, 2019, and obtained a seven-year term loan in an aggregate principal amount of $1.1 billion. All indebtedness outstanding under the previous credit agreement was repaid and terminated as of July 1, 2019. In 2019, the Company repaid $148.0 million of the outstanding term loans under the 2019 Credit Agreement, and subsequent to December 31, 2019, the Company has repaid an additional $38.0 million. As of December 31, 2019, we were in compliance with our financial performance covenant. Refer to Note 4, Acquisitions, to the audited consolidated financial statements for further details on the USAA AMCO Acquisition, as well as Note 11, Debt, for further information on the 2019 Credit Agreement.

**The First Amendment –** Subsequent to December 31, 2019, the Company entered into the First Amendment dated as of July 1, 2019 with other loan parties thereto, Barclays Bank PLC, as administrative agent, and the Royal Bank of Canada as fronting bank, and the lenders party thereto which amends the 2019 Credit Agreement.

Pursuant to the The First Amendment, effective January 17, 2020, the Company refinanced the Existing Term Loans with the Repriced Term Loans in an aggregate principal amount of $952.0 million. The Repriced Term Loans provide for substantially the same terms as the Existing Term Loans, including the same maturity date of June 2026, except that the Repriced Term Loans provide for a reduced applicable margin on the LIBOR of 75 basis points. The applicable margin on LIBOR under the Repriced Term Loans is 2.50%, compared to 3.25% under the Existing Term Loans.

**Capital Requirements –** VCA is a registered broker‑dealer subject to the Uniform Net Capital requirements under the Exchange Act, which requires maintenance of certain minimum net capital levels. In addition, we have certain non‑U.S. subsidiaries that have minimum capital requirements. As a result, such subsidiaries of our Company may be restricted in their ability to transfer cash to their parents. VCA and our non‑U.S. subsidiaries were in compliance with these requirements as of and for the years ended December 31, 2019, 2018 and 2017.

**Cash Flows –** the following table is derived from our Consolidated Statements of Cash Flows for the year ended December 31, 2019, 2018 and 2017.

*(in thousands)*

|  | Year Ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities | $227,384 | $134,345 | $96,169 |
| Net cash used in investing activities | (849,812) | (11,549) | (8,532) |
| Net cash provided by (used in) financing activities | 608,016 | (84,161) | (91,273) |

### Operating Activities

**2019 compared to 2018 –** Cash provided by operating activities was $227.4 million in 2019, compared to $134.3 million in 2018. The $93.0 million net increase in cash provided by operating activities was primarily due to a $48.2 million net increase in working capital as a result of timing of accrued expenses and compensation and a $28.8 million increase in net income, as well as adjustments for certain non-cash items which contributed $16.1 million to the increase in cash provided by operating activities.

The USAA AMCO Acquisition increased revenue and introduced new operating expenses that the Company did not incur prior to the acquisition, such as distribution costs paid to third parties and USAA, sub-transfer agent service costs, 529 College Savings Plan expenses, and direct member channel expenses.

**2018 compared to 2017 –** Cash provided by operating activities was $134.3 million in 2018, compared to $96.2 million in 2017. The $38.2 million net increase in cash provided by operating activities was mostly attributable to a $37.9 million increase in net income due to growth in the business and lower interest expense as a result of refinancing activities and pre-payments.

### Investing Activities

**2019 compared to 2018 –** Cash used in investing activities increased by $838.3 million to $849.8 million in 2019, from $11.5 million in 2018. The increase was primarily due to $851.3 million paid in cash at the July 1, 2019 closing of the USAA AMCO Acquisition, partially offset by $10.6 million in proceeds from the Company selling 100% of its equity investment in Cerebellum.

**2018 compared to 2017 –** Cash used in investing activities was $11.5 million in 2018, compared to $8.5 million in 2017. The $3.0 million net increase in cash used in investing activities was primarily due to additional equity investments made in Cerebellum in 2018.

### Financing Activities

**2019 compared to 2018 –** Cash provided by financing activities was $608.0 million in 2019 and consisted of $1,069.0 million of net proceeds from the 2019 Credit Agreement, partially offset by the repayment and termination of the previous credit agreement (dated February 2018) of $280.0 million and repayment of long-term debt under the 2019 Credit Agreement in the third and fourth quarter of 2019 of $148.0 million. The repurchase of our Class A common stock and payment of dividends contributed $15.5 million and $7.4 million, respectively, in cash used in financing activities during 2019.

Cash used in financing activities was $84.2 million in 2018 and consisted of the repayment of $499.7 million of term loans under a previous credit agreement (dated October 2014) and the repayment of long-term debt under a previous credit agreement (dated February 2018) of $80.0 million, partially offset by $360.0 million of net proceeds from a previous credit agreement (dated February 2018) and the generation of $156.5 million of net IPO proceeds.

**2018 compared to 2017 –** Cash used in financing activities was $84.2 million in 2018 as discussed above in the “2019 compared to 2018” section. Cash used in financing activities was $91.2 million in 2017 and consisted of the payment of a dividend to shareholders of $135.2 million, the repayment of long‑term debt under a previous credit agreement (dated October 2014) of $63.9 million, partially offset by $125.0 million of net proceeds from a previous credit agreement (dated October 2014).

### Contractual Obligations

The following summarizes our contractual obligations as of December 31, 2019:

*(in thousands)*

|  | Payments Due Total | 2020 | 2021-2022 | 2023-2024 | 2025 and Thereafter |
| --- | ---: | ---: | ---: | ---: | ---: |
| Principal payments on borrowings(1) | $952,000 | $— | $— | $— | $952,000 |
| Interest payable(1)(2) | 335,570 | 51,626 | 103,252 | 103,252 | 77,439 |
| Contingent consideration payable for acquisition(3) | 118,700 | 29,675 | 59,350 | 29,675 | — |
| Lease obligations(4) | 22,974 | 6,442 | 8,632 | 4,492 | 3,408 |
| **Total** | $1,429,244 | $87,743 | $171,234 | $137,419 | $1,032,847 |

(1) The total principal payments on borrowings reflects the gross amount of principal outstanding on the term loans under the 2019 Credit Agreement as of December 31, 2019. The Company has satisfied the required principal amortization of 1.00% per annum through the term of the loan, June 2026. Subsequent to December 31, 2019, the Company has repaid an additional $38.0 million of principal outstanding on the term loans under the 2019 Credit Agreement.

(2) The total interest payable reflects the interest obligation over the life of the loans calculated based on the principal amount of the term loans outstanding under the 2019 Credit Agreement as of December 31, 2019 using the 5.34863% interest rate in effect on that date.

The Company entered into the First Amendment to the Credit Agreement on January 17, 2020. Pursuant to the First Amendment, the Company refinanced the Existing Term Loans with Repriced Term Loans in an aggregate principal amount of $952.0 million. The Repriced Term Loans provide for a reduced applicable margin on LIBOR of 75 basis points (2.50% compared to 3.25%), for an estimated annual interest rate expense savings of approximately $7.0 million, or 13.5%.

(3) Represents the fair value of the contingent consideration that is estimated to be paid over the next four years resulting from the USAA AMCO Acquisition. A maximum of $150.0 million ($37.5 million per year) in contingent payments is potentially payable to the sellers.

(4) Operating leases include the minimum rent commitments under non-cancelable operating leases, net of cash expected to be received under the sub-lease.

### Off‑Balance Sheet Arrangements

In connection with dividends declared in February 2017 and December 2017, holders of restricted stock awards that were unvested at the time such dividends were declared are entitled to be paid the dividends as and when the restricted stock vests. Holders of stock options that were unvested at the time the December 2017 dividend was declared are entitled to receive a cash bonus equivalent of the December 2017 dividend as and when their stock options vest. These amounts are not recorded as a liability until and unless the awards vest in accordance with their respective agreements.

The Company announced the initiation of quarterly cash dividends in August 2019 and paid a quarterly dividend in September and December 2019. Holders of restricted stock awards that are unvested at the time the quarterly dividends are declared are entitled to be paid these dividends as and when the restricted stock vests.

As of December 31, 2019, the cash bonuses and distributions related to dividends on restricted shares and options that are expected to vest in the future totaled $1.3 million.

### Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in accordance with GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions that in certain circumstances affect amounts reported in the audited consolidated financial statements. In preparing these financial statements, our estimates and judgements are based on historical experience, information from third-party valuation professionals and various other assumptions, giving due consideration to materiality. We consider the accounting policies discussed below to be critical to the understanding of our consolidated financial statements. Actual results could differ from our estimates and assumptions, and any such difference could be material to our consolidated financial statements. Significant accounting policies are described more fully in Note 2, Significant Accounting Policies, to the audited consolidated financial statements.

**Business Combinations –** We recognize and measure identifiable assets acquired and liabilities assumed in business combinations as of the acquisition date at fair value. The process of determining the fair value of identifiable intangible assets at the date of acquisition utilizes an income approach and requires significant estimates and judgment as to expectations for earnings on the related managed assets acquired, redemption rates, growth rates from sales efforts, the effects of market conditions and a discount rate. The process for estimating the fair value of acquired trade names considers comparable royalty rates and projected revenue streams. We typically utilize an independent valuation expert to assist with these valuations.

We recognize and measure contingent consideration liabilities at fair value as of the acquisition date using an option pricing model and Monte Carlo simulation. These valuations require significant estimates and judgments related to projected revenue growth rates, adjustments for market-based risk, volatility and discount rates. The fair value of contingent consideration liabilities is remeasured at each reporting period, typically using the same methodology used to determine the acquisition date fair value. Any change in the fair value estimate subsequent to the acquisition date is recorded in the earnings of that period.

**Goodwill and Indefinite‑lived Intangible Assets –** The accounting for goodwill and indefinite‑lived intangible assets requires significant estimates and judgment in the ongoing evaluation for impairment, and for indefinite-lived intangible assets, reconsideration of an asset’s useful life. Changes in these assumptions or estimates could materially affect the determination of the fair value of goodwill and indefinite-lived intangible assets.

Goodwill and indefinite‑lived intangible assets are reviewed for impairment annually as of October 1 using a qualitative approach which requires the weighing of positive and negative evidence collected through the consideration of various factors to determine whether it is more likely than not that the asset is impaired.

For goodwill, we consider the Company’s performance relative to historical or projected future operating results, significant changes in the Company's use of the acquired assets in a business combination or strategy for the Company's overall business, market cap and significant industry or economic trends. If, after considering various factors, management determines that it is more likely than not that goodwill is impaired, a two-step process to test for and measure impairment is performed which begins with a quantitative assessment to estimate the fair value of the Company. The assumptions used to estimate fair value for goodwill include management's estimates of future growth rates, operating cash flows, discount rates and terminal value.

Because the advisory, distribution and transfer agent contracts are with the funds, renewable annually and have a history of being renewed, industry practice under GAAP is to consider the contract lives to be indefinite and, as a result, not amortizable. For these fund contracts as well as the trade name indefinite-lived intangible assets, we consider (i) macroeconomic and entity‑specific factors, including changes to legal, regulatory or contractual provisions of the renewable advisory and distribution contracts, (ii) the effects of obsolescence, demand, competition and other economic factors that could impact the funds’ projected performance and (iii) the existence or expectation of significant changes in the level and mix of managed assets.

In addition, for indefinite-lived intangible assets, we consider whether events or circumstances continue to support an indefinite useful life. Indicators monitored by us that may indicate an indefinite useful life is no longer supported generally include (i) changes in the use of the asset, (ii) a significant decline in the level of managed assets and (iii) significant reductions in underlying operating cash flows.

Indefinite-lived intangible assets are combined into a single unit of accounting for purposes of testing impairment if they operate as a single asset and represent as a group the highest and best use of the assets. If actual changes in the underlying managed assets or other conditions, such as redemption rates or changes to contractual provisions, indicate that it is more likely than not that the asset is impaired, or if the estimated useful life is reduced, we perform a quantitative approach to estimate the fair value of the intangible asset. The process of estimating the fair value of the intangible asset requires us to estimate the level and mix of managed assets, considering future redemption rates, growth rates, market appreciation/depreciation and a discount rate. If the carrying value of the intangible asset exceeds its fair value, we recognize an impairment charge equal to that excess.

## Market risk

As filed, 5,306 characters.

*Market Risk –* Substantially all of our revenues are derived from investment management, fund administration and distribution fees, which are based on the market value of our AUM. Accordingly, our revenues and net income may decline as a result of our AUM decreasing due to depreciation of our investment portfolios. In addition, such depreciation could cause our clients to withdraw their assets in favor of other investment alternatives that they perceive to offer higher returns or lower risk, which could cause our revenues and net income to decline further.

The value of our AUM was $151.8 billion at December 31, 2019. A 10% increase or decrease in the value of our AUM, if proportionately distributed over all of our strategies, products and client relationships, would cause an annualized increase or decrease in our revenues of approximately $91.1 million at our weighted‑average fee rate of 60 basis points for the year ended December 31, 2019. Because of declining fee rates from larger relationships and differences in our fee rates across investment strategies, a change in the composition of our AUM, in particular, an increase in the proportion of our total AUM attributable to strategies, clients or relationships with lower effective fee rates, could have a material negative impact on our overall weighted‑average fee rate. The same 10% increase or decrease in the value of our total AUM, if attributed entirely to a proportionate increase or decrease in the AUM of the Victory Funds, to which we provide a range of services in addition to those provided to institutional separate accounts, would cause an annualized increase or decrease in our revenues of approximately $103.2 million at the Victory Funds’ aggregate weighted‑average fee rate of 68 basis points. If the same 10% increase or decrease in the value of our total AUM was attributable entirely to a proportionate increase or decrease in the assets of our institutional separate accounts, it would cause an annualized increase or decrease in our revenues of approximately $59.2 million at the weighted‑average fee rate across all of our institutional separate accounts of 39 basis points for the year ended December 31, 2019.

As is customary in the investment management industry, clients invest in particular strategies to gain exposure to certain asset classes, which exposes their investment to the benefits and risks of those asset classes. We believe our clients invest in each of our strategies in order to gain exposure to the portfolio securities of the respective strategies and may implement their own risk management program or procedures. We have not adopted a corporate‑level risk management policy regarding client assets, nor have we attempted to hedge at the corporate level or within individual strategies the market risks that would affect the value of our overall AUM and related revenues. Some of these risks, such as sector and currency risks, are inherent in certain strategies, and clients may invest in particular strategies to gain exposure to particular risks. While negative returns in our strategies and net client cash outflows do not directly reduce the assets on our balance sheet (because the assets we manage are owned by our clients, not us), any reduction in the value of our AUM would result in a reduction in our revenues.

*Exchange Rate Risk –* A portion of the accounts that we advise hold investments that are denominated in currencies other than the U.S. dollar. To the extent our AUM are denominated in currencies other than the U.S. dollar, the value of that AUM will decrease with an increase in the value of the U.S. dollar, or increase with a decrease in the value of the U.S. dollar. Each investment team monitors its own exposure to exchange rate risk and makes decisions on how to manage that risk in the portfolios they manage. We believe many of our clients invest in those strategies in order to gain exposure to non‑U.S. currencies, or may implement their own hedging programs. As a result, we generally do not hedge an investment portfolio’s exposure to non‑U.S. currency.

We have not adopted a corporate‑level risk management policy to manage this exchange rate risk. Assuming 8% of our AUM are invested in securities denominated in currencies other than the U.S. dollar and excluding the impact of any hedging arrangement, a 10% increase or decrease in the value of the U.S. dollar would decrease or increase the fair value of our AUM by $1.2 billion, which would cause an annualized increase or decrease in revenues of approximately $7.3 million at our weighted‑average fee rate for the business of 60 basis points for the year December 31, 2019.

We operate in several foreign countries and incur operating expenses associated with these operations. In addition, we have revenue and revenue‑sharing arrangements that are denominated in non‑U.S. currencies. We do not believe foreign currency fluctuations materially affect our results of operations.

*Interest Rate Risk –* Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. At December 31, 2019, we were exposed to interest rate risk as a result of the amounts outstanding under the 2019 Credit Agreement.

## Controls and procedures

As filed, 3,750 characters.

### Evaluation of Disclosure Controls and Procedures

Regulations under the Exchange Act require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible disclosure controls and procedures.

Based on the evaluation of the effectiveness of the disclosure controls and procedures by our management as of December 31, 2019, our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

### Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019 using the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on our evaluation under the COSO framework, our management concluded that our internal control over financial reporting is effective as of December 31, 2019 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm with respect to our internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies.”

### Changes in Internal Control over Financial Reporting

Regulations under the Exchange Act require public companies, including our company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a‑15(f) and Rule 15d‑15(f) of the Exchange Act. In connection with their evaluation of our disclosure controls and procedures, our chief executive officer and chief financial officer did not identify any change in our internal control over financial reporting during the most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Mar 13, 2020.
Source: SEC EDGAR, the filing index for accession 0001564590-20-010652. Last ingested by Listed: Oct 30, 2026, 14:15 ET. No prices; not investment advice.