Investment group

DIAMOND HILL INVESTMENT GROUP INC: Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

Forward-looking statements

Throughout this Form 10-Q and other publicly available documents, including the
documents incorporated herein by reference, the Company may make forward-looking
statements within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995, Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), relating to such matters as anticipated operating
results, AUM prospects and levels, technological developments, economic trends
(including interest rates and market volatility), expected transactions and
similar matters. The words "believe," "expect," "anticipate," "estimate,"
"guidance," "forecast," "may," "will," "likely," "project," "should," "hope,"
"seek," "plan," "intend" and similar expressions identify forward-looking
statements that speak only as of the date thereof. Similarly, descriptions of
our objectives, strategies, plans, goals or targets are also forward-looking
statements. While the Company believes that the assumptions underlying its
forward-looking statements are reasonable, investors are cautioned that any of
the assumptions could prove to be inaccurate and, accordingly, actual results
and experiences could differ materially from the anticipated results or other
expectations expressed in the forward-looking statements.

Factors that could cause such actual results or experiences to differ from
results discussed in the forward-looking statements include, but are not limited
to: (i) any reduction in the Company's AUM; (ii) withdrawal, renegotiation, or
termination of DHCM's investment advisory agreements; (iii) damage to the
Company's reputation; (iv) failure to comply with investment guidelines or other
contractual requirements; (v) challenges from the competition the Company faces
in its business; (vi) adverse regulatory and legal developments; (vii)
unfavorable changes in tax laws or limitations; (viii) interruptions in or
failure to provide critical technological service by the Company or third
parties; (ix) adverse civil litigation and government investigations or
proceedings; (x) risk of loss on the Company's investments; (xi) lack of
sufficient capital on satisfactory terms; (xii) losses or costs not covered by
insurance; (xiii) impairment of goodwill or intangible assets; (xiv) a decline
in the performance of the Company's products; (xv) changes in interest rates and
inflation; (xvi) changes in national and local economic and political
conditions; (xvii) the continuing economic uncertainty in various parts of the
world; (xviii) the after-effects of the COVID-19 pandemic; (xix) political
uncertainty caused by, among other things, political parties, economic
nationalist sentiments, tensions surrounding the current socioeconomic
landscape, and other risks identified from time-to-time in other public
documents the Company files with the SEC.

Readers are cautioned not to place undue reliance on forward-looking statements.
The Company undertakes no obligation to publicly update forward-looking
statements. Readers are advised, however, to consult any further disclosures the
Company makes on related subjects in its public announcements and SEC filings.

General

The Company derives consolidated revenue and net income from investment advisory
and fund administration services provided by DHCM. DHCM is a registered
investment adviser under the 1940 Act, as amended. DHCM sponsors, distributes,
and provides investment advisory and related services to clients through pooled
investment vehicles, including the Funds, DHMF, separately managed accounts, and
model delivery programs.

DHCM is committed to generating excellent, long-term investment outcomes and
building enduring client partnerships. By committing to shared investment
principles, including valuation-disciplined active portfolio management,
fundamental bottom-up research, and a long-term business owner mindset, DHCM has
created a suite of investment strategies designed for long-term strategic
allocations from institutionally-oriented investors. DHCM's core values of
curiosity, ownership, trust, and respect create an environment where investment
professionals focus on results and all teammates focus on the overall client
experience. The combination of these investment principles and core values
creates an aligned boutique model ensuring the Company's associates have a
vested interest in the success of the Company's clients. This alignment with
clients is emphasized through: (i) personal investment by Company employees in
the strategies managed, (ii) a fee philosophy focused on a fair sharing of the
economics among clients, employees, and shareholders, (iii) a strict adherence
to capacity discipline ensuring the ability to add value for existing clients,
and (iv) compensation driven by the value created for clients.

The Company's primary objective is to fulfill its fiduciary duty to its clients.
The Company believes this focus on generating excellent, long-term investment
outcomes and building enduring client partnerships will enable it to grow its
intrinsic value to achieve a compelling, long-term return for its shareholders.
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Assets under management

The Company derives revenue primarily from DHCM's investment advisory and
administration fees. Investment advisory and administration fees paid to DHCM
are generally based on the value of the investment portfolios it manages and
fluctuate with changes in the total value of its AUM. The Company, through DHCM,
recognizes revenue when it satisfies its performance obligations under the terms
of the applicable contract.
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The Company's revenues are highly dependent on both the value and composition of
AUM. The following is a summary of the Company's AUM by product and investment
objective, as well as a roll-forward of the change in AUM, for the three- and
nine-month periods ended September 30, 2022 and 2021:

                                                Assets Under Management
                                                  As of September 30,
(in millions, except percentages)           2022               2021        % Change
Proprietary funds                   $     15,151            $ 18,750          (19) %
Sub-advised funds                          3,038               3,665          (17) %
Separately managed accounts                5,693               6,771          (16) %
Total AUM                           $     23,882            $ 29,186          (18) %


                                                           Assets Under Management
                                                            by Investment Strategy
                                                             As of September 30,
(in millions, except percentages)                      2022               2021        % Change
U.S. Equity
Large Cap                                      $     15,713            $ 19,651          (20) %
Small-Mid Cap                                         2,515               3,031          (17) %
Mid Cap                                                 847               1,086          (22) %
Small Cap                                               342                 595          (43) %
All Cap Select                                          407                 404            1  %
Large Cap Concentrated                                   86                  50           72  %
Micro Cap                                                14                  14            -  %
  Total U.S. Equity                                  19,924              24,831          (20) %

Alternatives
Long-Short                                            1,776               2,062          (14) %
  Total Alternatives                                  1,776               2,062          (14) %

Global/International Equity
International                                            45                  29           55  %
Global(a)                                                 -                  16              NM
  Total Global/International Equity                      45                  45            -  %

Fixed Income
Short Duration Securitized Bond                       1,357               1,494           (9) %
Core Fixed Income                                       755                 764           (1) %
Long Duration Treasury                                   34                  50          (32) %
  Total Fixed Income                                  2,146               2,308           (7) %

  Total-All Strategies                               23,891              29,246          (18) %
 (Less: Investments in affiliated funds)(b)              (9)                (60)             NM
Total AUM                                      $     23,882            $ 29,186          (18) %

(a) The Diamond Hill Global Fund was liquidated on December 17, 2021.

(b) Some of the Funds hold shares in the Diamond Hill Short Duration Securitized Bond Fund. The Company reduces the total assets under management of the investments held in this affiliated fund.


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                                                                              Change in Assets
                                                                              Under Management
                                                                        For the Three Months Ended
                                                                                September 30,
(in millions)                                                             2022                  2021
AUM at beginning of the period                                      $       25,789          $  32,360
Net cash inflows (outflows)
proprietary funds                                                             (629)               155
sub-advised funds                                                               53                  -
separately managed accounts                                                   (184)                65
                                                                              (760)               220
Sale of high yield-focused advisory contracts                                    -             (3,456)
Net market appreciation (depreciation) and income                           (1,147)                62
Decrease during the period                                                  (1,907)            (3,174)
AUM at end of the period                                            $       23,882          $  29,186

Average AUM during the period                                       $       26,245          $  30,659

                                                                              Change in Assets
                                                                              Under Management
                                                                         For the Nine Months Ended
                                                                                September 30,
(in millions)                                                             2022                  2021
AUM at beginning of the period                                      $       31,028          $  26,411
Net cash inflows (outflows)
proprietary funds                                                             (884)             2,142
sub-advised funds                                                             (129)               (57)
separately managed accounts                                                    (25)               279
                                                                            (1,038)             2,364
Sale of high yield-focused advisory contracts                                    -             (3,456)
Net market appreciation (depreciation) and income                           (6,108)             3,867
Increase (decrease) during the period                                       (7,146)             2,775
AUM at end of the period                                            $       

23,882 $29,186

Average AUM during the period                                       $       28,300          $  30,305




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                                                                         Net Cash Inflows (Outflows)
                                                                              Further Breakdown
                                                                         For the Three Months Ended
                                                                                September 30,
(in millions)                                                              2022                2021
Net cash inflows (outflows)
Equity                                                                $      (682)         $     (18)
Fixed Income                                                                  (78)               238
                                                                      $      (760)         $     220

                                                                         Net Cash Inflows (Outflows)
                                                                              Further Breakdown
                                                                          For the Nine Months Ended
                                                                                September 30,
(in millions)                                                              2022                2021
Net cash inflows (outflows)
Equity                                                                $    (1,064)         $   1,182
Fixed Income                                                                   26              1,182
                                                                      $    (1,038)         $   2,364


AUM decreased $1.9 billion during the three months ended September 30, 2022, due
to depreciation in the financial markets and net outflows out of the Company's
strategies during the period. The Company experienced both equity and fixed
income outflows during the period. Equity outflows were primarily out of the
Company's Large Cap strategy.

AUM decreased $7.1 billion during the nine months ended September 30, 2022, due
to depreciation in the financial markets and net outflows out of the Company's
strategies. The Company experienced equity outflows during the period primarily
out of the Company's Large Cap strategy.

Model Delivery Schedules – Assets Under Advise

DHCM provides strategy-specific model portfolios to sponsors of model delivery
programs. DHCM does not have discretionary investment authority over individual
client accounts in model delivery programs, and therefore, these assets are not
included in the Company's AUM. Rather, the Company refers to these model
delivery assets as assets under advisement or AUA. DHCM is paid for its services
by the program sponsor at a pre-determined rate based on the amount of AUA in
the program. Model delivery AUA was $1.7 billion as of September 30, 2022, $2.1
billion as of December 31, 2021, and $1.9 billion as of September 30, 2021.
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