ACGP 10-K & 10-Q changes, risk factors and insider trading

Investment advisory and incentive fees, which are based on the amount and composition of AUM in our funds and accounts, represent our largest source of revenues. Growth in revenues depends on good investment performance, which influences the value of existing AUM as well as contributes to higher investment and lower redemption rates and attracts additional investors while maintaining current fee levels. Growth in AUM is also dependent on being able to access various distribution channels, which is usually based on several factors, including performance and service. In light of the various ongoing geo-political dynamics created by the conflict in the Middle East and the Russian invasion of Ukraine and their impact on the global economy and markets, we could experience higher volatility in short-term returns of our funds.

(a) Includes $621$408 and $856$621 of sub-advisory AUM related to GAMCO International SICAV - GAMCO Merger Arbitrage, $69$68 and $70$69 of sub-advisory AUM related to Gabelli Merger Plus+ Trust Plc and $240 and $206 of 100% U.S. Treasury Fund managed by GAMCO at December 31, 20232024 and 2022,2023, respectively.

(bc) Includes $236$234 million and $239$236 million of proprietary capital, respectively.

The majority of our AUM have calendar year-end measurement periods, and our incentive fees are primarily recognized in the fourth quarter. Assets under management decreased on a net basis by $251$343 million for the year ended December 31, 20232024 due to net investor outflows of $325 million, offset partially by market appreciation of $68$363 million and the impact of currency fluctuations of $6$29 million from non-US dollar classes of investment funds.funds, this was offset partially by market appreciation of $49 million. In the merger arbitrage strategy, most of the outflows ($265$198 million) were tied to GAMCO Merger Arbitrage UCITS (a Luxembourg entity organized as an Undertaking for Collective Investment in Transferrable Securities). These outflows were generally from reallocations to other asset classes as a merger arbitrage fund’s nominal expected return is partly a function of the risk free rate, which increased from less than 1% at the end of 2021 to over 4% by the end of 2022 and was sustained at or above 5% for the entirety of 2023.

Total revenues were $13.2 million for the year ended December 31, 2024, $0.5 million higher than total revenues of $12.7 million for the year ended December 31, 2023, $2.5 million lower than total revenues of $15.2 million for the year ended December 31, 2022.2023. Total revenues by type were as follows (dollars in thousands):

AdvisoryAll andother incentive feesrevenues were $12.3$8.2 million for 2023 compared to $14.8$9.0 million forin 2022,the ayear decreaseago of $2.5 million.quarter. This decrease is the result of lower performance-based incentive fees and lower average AUM in 2023.2024.

Incentive fees are directly related to the gains generated for our clients’ accounts. We earn a percentage, usually 20%, of such gains. Incentive fees were $3.0 million in 2024 compared to $3.5 million in 2023, down $1.6 million from $5.1 million in 2022.2023.

Compensation: Compensation, which includes variable compensation, salaries, bonuses and benefits, was $18.3 million for the year ended December 31, 2024 compared to $17.2 million for the year ended December 31, 2023, a decrease of $1.7 million from $18.9 million for the year ended December 31, 2022.2023. Fixed compensation expense, which includes salaries, stock-based compensation, bonuses and benefits, decreasedincreased to $12.4 million in 2024 from $10.9 million in 2023 from $11.5 million in 2022.2023. The remainder of compensation expense represents variable compensation that fluctuates with management and incentive fee revenues as well as the investment results of certain proprietary accounts. Variable payouts are also impacted by the mix of products upon which performance fees are earned and the extent to which they may exceed their allocated costs. For 2023, these variable payouts (based on the investment performance of the products with incentive fees) were $6.3 million, a decrease of $1.1 million from $7.4 million in 2022 driven by lower revenues.

Management fees: Management fee expense is incentive-based and entirely variable compensation equal to 10% of income before management fee and income taxes and excludes the impact of consolidating entities, and is paid to the Executive Chair or his designees pursuant to his employment agreement with AC. In 20232024 AC recorded management fee expense of $5.4$5.9 million compared to no$5.4 management fee expensemillion in 2022 due to pre-tax losses.2023.

Other operating expenses: Our other operating expenses were $7.8 million in 2024 compared to $6.9 million in 20232023. comparedThe toincrease $7.6was millionprimarily indriven 2022.by marketing expenses of the SICAV.

Investment and other non-operating income/(expense),income, net

Net gain/(loss) from investments: Net gain/(loss) from investments is directly related to the performance of our proprietary portfolio. For the year ended December 31, 2023,2024, net gains from investments were $43.0$42.8 million compared to losses of $56.5$43.0 million in 2022, reflecting partial recovery from 2022's volatility. In 2022, market volatility brought on by rising interest rates, geo-political factors, and accelerating inflation impacted AC's investments, other than investments in merger arbitrage funds, on a mark-to-market basis.2023.

Interest and dividend income: Interest and dividend income increased to $32.5 million in 2024 from $25.3 million in 2023 from $10.7 million in 2022,2023, primarily due to higher interestdividend income asfrom aour resultholdings of higher nominal interest ratesGAMCO in 2023.2024.

In 2023,2024, we recorded income tax expense of $9.1$8.3 million resulting in an effective tax rate (“ETR”) of 19.5%.15.8%. In 2022,2023, we recorded an income tax benefitexpense of $14.9$9.1 million resulting in an ETR of 24.7%.19.5%. The decrease in rate from 20222023 is primarily driven by the dividends received deduction from the special dividend from GAMI and deferred tax benefits from athe foreignsale investmentof GAMCO shares which reduced the 20232024 rate.

Net income attributable to noncontrolling interests was $0.1 million in 2024 compared to $0.3 million in 2023 compared to $3.4 million in 2022.2023. The decrease was driven primarily by the deconsolidation of The PMV Entities (as defined in Note 1) in Q3 2022 and the Gabelli Merger Plus+ Trust tender offers in Q3 2022 and Q1 2023, which resulted in redemptions of redeemable noncontrolling interests.

Net Income/(Loss)

Net income for the year ended December 31, 20232024 was $37.5$44.3 million compared to net loss of $48.9$37.5 million for the prior year. The change was primarily driven by markethigher uncertaintydividend income in 2022,2024, as described in Net gain/(loss) from investments. Also contributing was higher interest income in 2023 reflecting higher nominal interest rates in 2023.above.

Investments in securities are recorded at fair value in the consolidated statements of financial condition in accordance with U.S. GAAP. Securities transactions and any related gains and losses are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the specific identified cost basis and are included in net gain/(loss) from investments on the consolidated statements of income.

Management determines the appropriate classification of securities at the time of purchase. Government debt with maturities of greater than three months at the time of purchase are considered investments in debt securities. Investments in debt securities are accounted for as either trading, available for sale or held-to-maturity. The Company's investments in debt securities are all classified as trading securities.

Securities sold, but not yet purchased are recorded on the trade date, and are stated at fair value and represent obligations of AC to purchase the securities at prevailing market prices. Therefore, the future satisfaction of such obligations may be for an amount greater or less than the amounts recorded on the consolidated statements of financial condition. The ultimate gains or losses recognized are dependent upon the prices at which these securities are purchased to settle the obligations under the sales commitments. Unrealized gains and losses and realized gains and losses from covers of securities sold, not yet purchased transactions are included in net gain/(loss) from investments on the consolidated statements of income.

The Company is general partner or co-general partner of various managed funds. We also have investments in unaffiliated partnerships, offshore funds and other entities (collectively, “investments in partnerships and affiliates”). The Company accounts for its investments in partnerships and affiliates under the equity method. Substantially all of the Company’s equity method investees are entities that record their underlying investments at fair value and are included in investments in partnerships in the consolidated statements of financial condition. Therefore, under the equity method of accounting, the Company’s share of the investee’s underlying net income predominantly represents fair value adjustments in the investments held by the equity method investees. The Company’s share of the investee’s underlying net income or loss is based upon the most currently available information and is recorded in net gain/(loss) from investments on the consolidated statements of income. Capital contributions are recorded as an increase in investments when payable, and withdrawals and distributions are recorded as reductions of the investments when receivable. Depending on the terms of the investment, the Company may be restricted as to the timing and amounts of withdrawals.

The following is a summary of the Company’s financial performance for the quarters ended MarchJune 31,30, 2025 and 2024:

We ended the firstsecond quarter of 2025 with approximately $870.8$899.2 million in cash and investments, net of securities sold, not yet purchased of $8.8$7.2 million. This includes $293.9$249.4 million of cash and cash equivalents; $64.0$143.1 million of U.S. Treasury obligations; $202.1$187.5 million of securities, net of securities sold, not yet purchased, including shares of GAMCO Investors, Inc. ("GAMCO") with a market value of $15.6$16.2 million; and $310.9$319.2 million invested in affiliated and third-party funds and partnerships, including investments in affiliated closed end funds which have a value of $85.2$86.6 million and more limited liquidity. Our financial resources provide flexibility to pursue strategic objectives that may include acquisitions, lift-outs, seeding new investment strategies, and co-investing, as well as shareholder compensation in the form of share repurchases and dividends.

Total shareholders’ equity was $899.0$914.7 million or $42.51$43.30 per share as of MarchJune 31,30, 2025, compared to $892.7 million or $42.14 per share as of December 31, 2024. Shareholders’ equity per share is calculated by dividing the total equity by the number of common shares outstanding. The increase in equity from the end of 2024 was largely attributable to income for the year to date period.

Three Months Ended MarchJune 31,30, 2025 Compared to Three Months Ended MarchJune 31,30, 2024

Total revenues in the firstsecond quarter were $2.1$2.2 million compared to $3.0$2.6 million in the firstsecond quarter of 2023.2024. Revenues generated by the GAMCO International SICAV – GAMCO Merger Arbitrage (the “SICAV”) were $0.9$1.0 million versus $1.7$1.3 million in the prior year period. All other revenues were $1.2 million compared to $1.3 million in the year-ago quarter.

Incentive fees are not recognized until the uncertainty surrounding the amount of variable consideration ends and the fee is crystalized, typically on an annual basis on December 31. Unrecognized incentive fees amounted to $2.0$9.5 million for the quarter ended MarchJune 31,30, 2025. There were no material unrecognized incentive fees for the quarter ended June 30, 2024. An incentive fee of approximately $1.0 million was earned on Gabelli Merchant Partners Plc (f/k/a Gabelli Merger Plus+ Trust Plc) during the quarter ended June 30, 2025, however due to the Company’s controlling ownership interest in the Marchentity, 31,this 2024revenue quarter.is eliminated in the consolidation of the entity for financial reporting purposes.

Compensation, which includes variable compensation, salaries, bonuses and benefits, was $4.4$5.3 million and $3.8$3.9 million for the three month periods ended MarchJune 31,30, 20242025 and 2023,2024, respectively, primarily driven by higher mark to market stock-based compensation expense of $0.9 million in 2025, partially offset by lower variable compensation of $0.3$1.6 millionmillion, inoffset 2025.partially by lower salary expense. Variable compensation fluctuates with management and incentive fee revenues as well as the investment results of certain proprietary accounts.

Management fee expense represents incentive-based and entirely variable compensation in the amount of 10% of income before management fee and income taxes and excluding the impact of consolidating entities and is payable to Mario J. Gabelli, Executive Chair, or his designee pursuant to his employment agreement. Management fee expense of $1.1 million and $2.0$2.8 million was recorded for the three-month periodsperiod ended MarchJune 31,30, 2025 andcompared 2024,to respectively.$0.4 million for the three-month period ended June 30, 2024.

Other operating expenses were $1.9$2.1 million forduring the three months ended MarchJune 31,30, 2025 compared to $2.2$1.9 million in the prior year's quarter driven primarily by lower variable-based marketing expenses on the SICAV.quarter.

Net gain/(loss) from investments is primarily related to the performance of our mergersecurities arbitrageportfolio and investments in partnerships. Investment gains were $10.9$27.1 million in the 2025 quarter compared to $16.8losses of $0.2 million in the comparable 2024 quarter. The primary driver of the 2025 quarter's results is the performance of our investments in our merger arbitrage funds.

Interest and dividend income wasdecreased $5.0to $5.8 million in the 2025 quarter comparedfrom to $6.0$7.9 million in the 2024 quarter, the decrease isquarter primarily driven by increasedlower interest income in the 2024 period as a result of higher averagesustained interest rates in the 20242025 quarter.

The effective tax rate for the three months ended MarchJune 31,30, 2025 and March 31, 2024 was 26.3%25.0% and 21.5%,19.1%, respectively. The difference in effective tax rate period over period is primarily driven by certain nondeductible compensation expenses in the 2025 quarter which increased the current year's effective tax rate, coupled with deferred tax benefits from a foreign investment which reduced the prior year quarter's effective tax rate.

Assets under management were $1.3 billion as of MarchJune 31,30, 2025 compared to $1.2 billion at December 31, 2024. The increase from year-end was primarily attributable to market appreciation.

Fund flows for the three months ended MarchJune 31,30, 2025 (in millions):

The majority of our AUM have calendar year-end measurement periods, and our incentive fees are primarily recognized in the fourth quarter. Assets under management increased on a net basis by $21$73 million for the quarter ended MarchJune 31,30, 2025 due to market appreciation of $33$49 million andmillion, the impact of currency fluctuations in non-US dollar denominated classes of investment funds of $13$23 million,million partially offset byand net investor outflowsinflows of $25$1 million.

We require relatively low levels of capital expenditures and have a highly variable cost structure where costs increase and decrease based on the level of revenues we receive. Our revenues, in turn, are highly correlated to the level of AUM and to investment performance. We anticipate that our available liquid assets should be sufficient to meet our cash requirements as we build out our operating business. At MarchJune 31,30, 2025, we had cash and cash equivalents of $293.9$249.4 million, Investments in U.S. Treasury Bills of $64.0$143.1 million and $202.1$187.5 million of investments net of securities sold, not yet purchased of $8.8$7.2 million. Included in cash and cash equivalents as of MarchJune 31,30, 2025 is $3.1$18.0 million which is held by consolidated investment funds and may not be readily available for the Company to access.

Net cash used in operating activities was $8.1$49.3 million for the threesix months ended MarchJune 31,30, 2025. Operating cash flows in 2025 are driven by $7.7$56.6 million of net decreasesincreases in securities,securities and adjustments for noncash items, primarily gains on investments securities and partnership investments and deferred taxes of $6.7$31.4 million,million. andThese $3.8uses million of net receivables/payables,were offset partially by our net income of $7.8$26.4 million, $7.6 million of net receivables/payables and net distributions from investment partnerships of $2.3$4.7 million. Net cash provided by investing activities was $1.2$2.1 million primarily due to proceeds from sales of securities of $0.6$1.2 million and return of capital on securities of $0.6$1.0 million, partially offset by purchases of securities of $0.1 million. Net cash used in financing activities was $1.4$4.3 million resulting primarily from stock buyback payments of $1.4$2.2 million and dividends paid of $2.1 million.

Net cash usedprovided inby operating activities was $1.1$28.6 million for the threesix months ended MarchJune 31,30, 2024. Operating cash flows in 2024 are driven by our net income of $16.8 million, $22.9 million of net decreases in securities, and net distributions from investment partnerships of $4.1 million. These were offset partially by adjustments for noncash items, primarily gains on investments securities and partnership investments and deferred taxes of $14.0$13.8 million, $3.8 million of net decreases in securities, net contributions to investment partnerships of $0.5 million, offset partially by our net income of $13.9 million and $3.3$1.4 million of net receivables/payables. Net cash used in investing activities was $0.7$0.6 million primarily due to purchases of securities of $4.0$5.0 million, partially offset by proceeds from sales of securities of $2.7$3.5 million and return of capital on securities of $0.6$0.9 million. Net cash used in financing activities was $4.3$8.7 million resulting primarily from stock buyback payments of $3.9$6.2 million, dividends paid of $2.1 million and redemptions of redeemable noncontrolling interests of $0.4 million.