# AlTi Global, Inc. (ALTI) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from AlTi Global, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1838615/000162828024012642/alti-20231231.htm
Accession: 0001628280-24-012642
Filing date: 2024-03-22
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/ALTI/
All MD&A years: /company/ALTI/mda/
Previous year: /company/ALTI/mda/fy2022/ (FY 2022)
Next year: /company/ALTI/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ALTI GLOBAL, INC.

In this section, unless the context otherwise requires, references to “AlTi,” “we,” “us,” and “our” are intended to mean the business and operations of AlTi and its consolidated subsidiaries. The following discussion analyzes the financial condition and results of operations of AlTi and should be read in conjunction with the consolidated audited financial statements and the related notes included in this Annual Report.

Amounts and percentages presented throughout our discussion and analysis of financial condition and results of operations may reflect rounded results in thousands (unless otherwise indicated) and consequently, totals may not appear to sum.

Our Business

We are a multi-disciplinary financial services business, with a diverse array of investment, advisory, and administrative capabilities with which we serve our clients and investors around the globe; and provide value to our shareholders. Our business is organized into two business segments: Wealth Management and Strategic Alternatives (formerly known as Asset Management):

•we manage or advise approximately $71.4 billion in combined assets as of December 31, 2023;

•in our Wealth Management segment, we provide holistic solutions for our wealth management clients through our full spectrum of wealth management services, including discretionary investment management services, non-discretionary investment advisory services, trust services, administration services, and family office services;

•in our Strategic Alternatives segment, we assist our investors with alternative investments and co-investments by providing access to highly differentiated opportunities in these areas as well as structuring and selecting partners with a proven track record in alternative asset classes, with attractive risk adjusted return characteristics.

Our business is global, with approximately 480 professionals operating in 21 cities in 10 countries across three continents as of December 31, 2023. These include approximately 80 individuals expected to depart and one country and city we expect to exit related to the pending sale of FOS and the sale of LRA, which became effective on March 5, 2024. See Note 3 (Business Combinations and Divestitures).

The services that we provide form a complementary ecosystem for our target markets of clients, investors, and businesses, many of whom share common interests and goals that we are able to connect and serve. The complementary nature of our services and a differentiated suite of capabilities positions us well for organic growth across our business lines. Our strategy includes a focus on inorganic growth through acquisitions and investments in talented managers in exchange for a share of future revenues or profits. We also believe we are well positioned to capitalize on global market trends and dynamics that we see facing our world as well as the industry, clients, investors, and businesses we serve.

Fee Structure

Consistent with offering a diverse range of services, we generate a diverse range of revenue streams across our business lines. A high-level summary of these revenue streams is set forth below.

Broadly, our revenues fall into four categories: recurring management, advisory, or administration fees; performance or incentive fees; distribution from investments and other income or fees:

•Management, advisory, and administration fees are historically more predictable across market conditions than our other revenue sources. These fees are recurring in nature (usually being annual or

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quarterly fees) and are earned from both our wealth management division from investment management, investment advisory, trusts and administration, and family office services, and also from our fund management activities associated with our internally managed funds. Added to the recurring nature of these fees, our high client retention rate in our wealth management services, and the long-term nature of our fund management fees, means that these fees are also relatively stable.

•Incentive or performance fees are comprised of both carried interest payments we earn on co-investments and annual performance or incentive fees earned in some cases from our investment management and advisory or fund management services associated with our internally managed funds. These fees, being performance related, are variable in nature and more susceptible to impact from exogenous factors. As a result, performance and incentive fees provide potential upside to our revenues in the future and, in our view, can be highly accretive to our profitability.

•Distributions from investments are generated from the equity interests we have in the three external managers pursuant to which we are entitled to distributions based on the terms of the respective arrangements. Distributions from each investment will be recorded upon receipt of the distribution. The Company receives distributions from its External Strategic Managers through our profit or revenue sharing arrangements that are generated through their management and incentive fees based on performance of the underlying investments. The management component of the distributions is recurring in nature, while the incentive portion is more susceptible to impact from exogenous factors.

•Other income or fees include transaction fees from our strategic advisory, corporate advisory, brokerage, and placement agency services. Transaction fees are generally non-recurring in nature, are typically commission based, and are payable on the successful completion of a transaction. Transactions are also susceptible to impact from exogenous factors. However, as is the case with performance and incentive fees, transaction fees provide potential upside to our revenues and, in our view, can be highly accretive to our profitability.

Wealth Management Fees

Investment management or advisory fees are the primary source of revenue in our Wealth Management segment. These fees are generally calculated on the basis of a percentage of the value of each client’s assets (AUM or AUA) and are charged using either an average daily balance or ending balance, quarterly in arrears.

AUA consists of all assets we are responsible for overseeing and reporting on, but we do not necessarily charge fees on all such assets. Billable assets represent the portion of our assets on which we charge fees. Non-billable assets are exempt of fees and consist of assets such as cash and cash equivalents in certain agreed upon situations, personally owned real estate, and other designated assets.

The fees vary depending upon the level and complexity of client assets and the services being provided. The fee typically covers the investment advisory services and basic estate and wealth planning services. The more complex estate and wealth planning services, as well as our Trustee service, and certain extended family office services, are typically billed separately, as a fixed or time-based amount.

Some clients in certain jurisdictions may also pay performance fees if their portfolio achieves returns in excess of an agreed benchmark or hurdle rate. Typically, such fees are paid annually upon crystallization and are not accrued prior to being earned.

Strategic Alternatives Fees

Fund Management Fees

We earn management fees in our Strategic Alternatives segment through our alternatives platform (compensation for internal fund management and advisory services), public real estate fund management and private real estate recurring fees. The management fees for the alternatives platform are approximately 0.75% to 1.5% of the net asset value of the funds’ underlying investments.

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Incentive Fees

TIG Arbitrage is entitled to receive incentive fees if certain performance returns have been achieved as stipulated in our governing documents. The incentive fees for TIG Arbitrage are calculated using 15% to 20% of the net profit/income. We recognize our incentive fees when it is no longer probable that a significant reversal of revenue will occur. Our incentive fees are not subject to clawback provisions.

Distributions from Investments

Distributions from investments are earned through our profit or revenue sharing arrangements with the External Strategic Managers. Our economic interests in the External Strategic Managers are as follows:

•Real Estate Bridge Lending Strategy—20.92% profit share;

•European Equities—25% revenue share; and

•Asian Credit and Special Situations—12% revenue share

Our distributions from investments from European equities and Asian credit and special situations are comprised of a management fee component and, depending on performance, an incentive fee component. Depending on the fund, the incentive fee component can range from 15% to 35% of the net profit/income, in excess of a 10% return hurdle.

Co-investment

As sponsor of private market direct and co-investment transactions, we generate income from debt and equity structures relating to specified real estate investments or investments in other alternative asset classes. Private market fees include arrangement, retainer, management, advisory, performance, acquisition, promote and other associated fees as well as interest arbitrage for debt structures. Arrangement fees are typically 50 to 100 basis points of equity value contributed into a transaction. Acquisition fees are typically payable where there are no agency fees or where there is an off-market transaction sourced by the team. Such acquisition fees are usually in the range of 50 to 100 basis points of the purchase price of the relevant acquisition. The equity structures are typically medium to long-term (three to ten years) closed-ended structures with fees normally ranging between 50 and 175 basis points of the equity value committed or drawn. The debt structure terms are generally between 12 and 36 months. The investment adviser, general partner or other entity entitled to fees in respect of each of our co-investments receives such fees either monthly, quarterly, or annually.

We may be entitled to a portion of the performance-related entitlements (such as carried interest or promote) that may be payable on exit from Co-investment transactions. Such revenues are only received if the investor hurdle (i.e. a minimum return to the investor) is reached and may include a catch-up. Carried interest entitlements are based on a percentage of the investor return above such hurdle and are set on a deal and fund basis. Typically, carried interest entitlements represent 10% to 20% of the investors’ equity internal rate of return in excess of an 8% to 15% hurdle, with no carried interest entitlement being payable if the hurdle is not met. In relation to our co-investments, a group company will typically have entered into an advisory or management agreement, or other arrangement, that entitles us to receive a share of base management fees (whether directly or through a joint venture entity) from the inception of the relevant investment or joint venture, through to exit and the liquidation of the relevant transaction vehicle, or as otherwise set out in an approved business plan. Where we have established feeder vehicles for clients, there may also be administration and advisory fees associated with those vehicles (these are earned by our trusts and administration business).

Real Estate Funds (Public and Private)

We generate income from managing and advising real estate investment funds. Our fees from managing and advising these vehicles are contained in management and advisory contracts relating to the relevant fund and are typically calculated on a sliding scale of percentages of the asset value, market capitalization or the investor capital of the relevant fund as applicable.

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Market Trends and Business Environment

Our business is directly and indirectly affected by conditions in the financial markets and economic conditions, particularly in the U.S. and to a lesser extent in Europe, and Asia. Our business is also sensitive to current and expected interest rates, as well as the currency markets.

2023 was a strong year for stocks and bonds despite the intra-year correction. The S&P 500 and the MSCI All Country World Index increased by 26.3% and 22.8% total return, respectively, in the year, representing the strongest year since 2019. Fixed income markets performed well as bond prices rose and yields fell. Despite significant fluctuations throughout the year, the 10-year U.S. Treasury bond yields ended the year at 3.9%, almost exactly where it started. The Bloomberg U.S. Aggregate Bond Index increased by 5.53% in 2023, while the Barclays Global Aggregate Index increased by 5.72% over the same time frame.

The catalyst for the market rally into year-end was a broad easing of financial conditions and reversal of the factors which caused the S&P 500’s 10% intra-year correction, attributed to several factors including falling long term government bond yields, a function of the Treasury announcing a slower pace of longer-dated debt issuance, as well as a Federal Reserve guidance of to no more rate hikes and possibly three rate cuts in 2024, falling oil prices due to higher U.S. production which provided consumer relief through lower prices, as well as slowing inflation.

Our fee-based revenue streams are driven by the value of clients’ portfolio holdings, in the case of our Wealth Management segment or the performance of our varied funds and direct investments in our Strategic Alternatives segment. The overall level of revenues in these businesses, however, does not correlate completely with changes in global equity and fixed income markets.

In our Wealth Management segment, while our client portfolios are well diversified across a range of asset classes and thus are not solely impacted by changes in equities or government bonds, they benefited in the year from the strong performance in the equity and fixed income markets. Client portfolios also include holdings such as gold, credit and hedge funds that also delivered positive returns in the year. Portfolio fluctuations also depend on multiple additional factors that include, but are not limited to, the level and duration of fixed income holdings with short-term money market funds showing limited volatility over the quarter, the level of alternative and private market holdings and the geographic and industry mix of client’s equity assets. We also note that our UHNW client base generally does not need to draw down from their portfolios to support day-to-day living needs and, accordingly, is able to approach portfolio investing with a long-term time horizon. Hence, in terms of behavior, they are less sensitive to short-term changes in market conditions.

In our Strategic Alternatives segment, the majority of our fees are derived from alternative funds which are structured to have low correlation to equity and fixed income markets and in some cases benefit in times of market stress. In particular, our event-driven strategy performed well during the second half of the year. Since US GAAP only permits recognition of incentive fees when they are fully crystallized, the positive performance in the second half is reflected in the fourth quarter, when the fees were crystallized.

Rising interest rates through most of 2023 had an impact on our public and private real estate assets. The higher cost of capital environment, rising costs of construction and declining real estate prices are negatively impacting some of the real estate segments in which we operate. This has impacted the price at which the public real estate vehicle that we manage trades in the market, which saw an average decline in price of 7% in the year, but declined more than 25% mid-year, impacted the level of management fees that we earn. On the private real estate side, the more difficult market and interest rate conditions may reduce the ultimate return expected from some of these investments. It is important to note that these assets are utilized in conjunction with longer-term investment strategies and are not subject to daily market pricing.

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We do not hedge corporate currency risk associated with client portfolio and investor holdings across global markets. Hence, as we report our revenues in U.S. dollars, the translation impact from changes in the value of currencies outside the U.S. dollar can impact our results in any given financial reporting period.

Throughout the year, we made progress on our strategic initiatives to set the Company up for the future. Some of these initiatives, particularly the work to restructure and reposition certain businesses, have impacted our US GAAP earnings, but are consistent with our goal of simplifying the business with a focus on recurring revenues.

We have continued to right-size the organization, simplify our business lines, and initiate processes to reduce the number of our regulated entities, while securing important client wins and adding key revenue-generating talent. Since the beginning of the year, we have reported AUM/AUA growth amidst a volatile market environment.

We believe that the combination of our Wealth Management and Strategic Alternatives segments differentiates us from pure-play firms in both sectors and provides a growing base of recurring and diversified revenues. In the year, total AUM/AUA increased 9.8%, and within our Wealth Management segment, these have grown 18.6% since the Business Combination.

In 2023 we generated revenues of $250.9 million, 77% of which were recurring revenues. We believe these results, generated largely through organic client wins, are starting to reflect the power of our franchise, which we believe will continue to flow to an improved bottom line as we look forward to 2024.

Despite these top-line results, we are reporting a US GAAP net loss of $305.8 million for the year, primarily due to a non-cash goodwill impairment charge that is largely related to decisions taken this year to restructure or exit unprofitable transaction-oriented business lines in our Strategic Alternatives segment and the impairment of intangible and other assets. The results also include several other non-cash items that negatively impacted US GAAP earnings. Adjusted EBITDA was $28.6 million in 2023.

Despite what has been a challenging year, our core businesses are performing well. Based on the initiatives already undertaken this year and those that we embarked on in connection with the 2024 budgeting, on an organic basis, we expect operating expenses to continue to trend downward in 2024. As these cost savings and other growth initiatives take hold next year, we would expect to see the impact of operating leverage drive improvements and greater consistency in our US GAAP results and Adjusted EBITDA. In addition, we believe that we will be able to deploy the capital raised from the recently announced investments from Allianz Strategic Investments S.à.r.l. and CWC AlTi Investor LLC to make accretive investments that will benefit our GAAP results and Adjusted EBITDA in 2024. A copy of this investment agreement is included as Exhibit 10.22 to this Annual Report on Form 10-K and incorporated herein by reference in Form 8-K filed February 23, 2024.

Non-Comparability of Predecessor Period

Our results for the year ended 2022 reflect only the results of TWMH and do not include the results of the TIG Entities, Alvarium, or Cartesian Growth Capital. Therefore, prior period amounts are not comparable to current period. Please see “Results of Operations” and “Reconciliation of Consolidated US GAAP Financial Measures to Certain Non-US GAAP Measures” for a detailed discussion of the underlying drivers of our results, including the accretive impacts of the Business Combination.

Managing Business Performance and Key Financial Measures

Non-US GAAP Financial Measures

We use Adjusted Net Income and Adjusted EBITDA as non-US GAAP financial measures. Adjusted EBITDA is derived from and reconciled to, but not equivalent to, its most directly comparable US GAAP measure of net income (loss). Adjusted Net Income represents net income (loss) before taxes plus (a) equity-settled share-based payments, (b) transaction-related costs, including professional fees, (c) impairment of equity method

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investments, (d) change in fair value of investment or other financial instruments, (e) onetime bonuses recorded in the statement of operations, (f) compensation expense related to the earn-in of certain variable interest entities, and (g) adjusted income tax expense. Adjusted EBITDA represents adjusted net income plus (a) interest expense, net, (b) income tax expense, (c) adjusted income tax expense less income tax expense, and (d) depreciation and amortization expense.

We use Adjusted Net Income and Adjusted EBITDA as non-US GAAP measures to track our performance and assess our ability to service our borrowings. These non-US GAAP financial measures supplement and should be considered in addition to and not in lieu of, the results of operations, which are discussed further under “Components of Consolidated Results of Income” and are prepared in accordance with US GAAP. For the specific components and calculations of these non-US GAAP measures, as well as a reconciliation of these measures to the most comparable measure in accordance with US GAAP, see “Reconciliation of Consolidated US GAAP Financial Measures to Certain Non-US GAAP Measures.”

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The following tables present the non-US GAAP financial measures for the periods indicated:

[[GREPCENT_TABLE]]
[["","For the Period","","Favorable (Unfavorable)"],["(Dollars in Thousands)","January 1, 2023 \u2013 December 31, 2023 (Successor)","","January 1, 2022 \u2013 December 31, 2022 (Predecessor)","","$ Change"],["Revenues"],["Management/Advisory fees","$","184,824","","","$","76,872","","","$","107,952"],["Incentive fees","43,377","","","\u2014","","","43,377"],["Distributions from investments","17,185","","","\u2014","","","17,185"],["Other income/fees","5,494","","","\u2014","","","5,494"],["Total Revenues","250,880","","","76,872","","","174,008"],["Net loss","(305,803)","","","(5,998)","","","(299,805)"],["Interest expense","14,501","","","427","","","14,074"],["Taxes","(10,534)","","","527","","","(11,061)"],["Depreciation & Amortization","17,039","","","2,339","","","14,700"],["EBITDA Reported","(284,797)","","","(2,705)","","","(282,092)"],["Stock based compensation (a)","21,450","","","4,223","","","17,227"],["Stock based compensation - Legacy (b)","24,697","","","\u2014","","","24,697"],["Transaction expenses (c)","42,825","","","9,110","","","33,715"],["Change in fair value of warrant liability (d)","12,866","","","\u2014","","","12,866"],["Change in fair value of gains on investments (e)","(4,451)","","","(247)","","","(4,204)"],["Change in fair value of earn-out liability (f)","(31,126)","","","\u2014","","","(31,126)"],["Organization streamlining cost (g)","12,076","","","\u2014","","","12,076"],["Impairment (non-cash) (h)","73,594","","","\u2014","","","73,594"],["Impairment goodwill (i)","153,589","","","\u2014","","","153,589"],["Losses on EMI/Carried Interest (non-cash) (j)","5,017","","","\u2014","","","5,017"],["EMI Adjustments (Interest, Depreciation, Taxes & Amortization) (k)","2,889","","","\u2014","","","2,889"],["Holbein compensatory earn-in (l)","\u2014","","","1,858","","","(1,858)"],["TWMH Partner's payout right (m)","\u2014","","","3,662","","","(3,662)"],["TIH Share Purchase extinguishment of debt (n)","\u2014","","","1,019","","","(1,019)"],["Adjusted EBITDA","$","28,629","","","$","16,920","","","$","11,709"]]
[[/GREPCENT_TABLE]]

(a)Add-back of non-cash expense related to awards of Class A Common stock (approved post-transaction).

(b)Add-back of non-cash expense related to awards of Class A Common stock (approved pre-transaction).

(c)Add-back of transaction expenses related to the Business Combination, including professional fees.

(d)Represents the change in fair value of the warrant liability.

(e)Represents the change in unrealized gains/losses related primarily to Investments held at fair value and changes in fair value of the TRA liability (Successor) and changes in fair value to the interest rate swap (Predecessor).

(f)Represents the change in fair value of the earn-out liability.

(g)Represents cost to implement organization change to derive cost synergy.

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(h)Represents impairment of intangible asset associated with the deconsolidation of AHRA of $29.4 million, impairment of LRA of $23.5 million, impairment of equity method investments of $15.6 million and amortization of carried interest of $4.1 million.

(i)Represents the impairment of goodwill.

(j)Represents the amortization of the step-up in equity method investments.

(k)Represents reported interest, depreciation, amortization, and tax adjustments of the Company's equity method investments.

(l)Add-back of cash portion of the compensatory earn-ins related to the Holbein acquisition as discussed in Note 5, “Equity-Based Compensation.” The $0.8 million of compensatory earn-ins is settled in 50% equity and 50% cash. Add-back of equity portion of compensatory earn-ins of $0.4 million is included in the equity settled share-based payments combined earnings before interest, taxes, depreciation, and amortization (“EBITDA”) adjustment.

(m)Represents the change in the TWMH partner’s payout related to the Business Combination.

(n)Represents forgiveness of a promissory note of a certain shareholder of TIH upon the sale of his shares in TIH to TWMH.

Operating Metrics

We monitor certain operating metrics that are common to the wealth and asset management industry, which are discussed below.

[[GREPCENT_TABLE]]
[["AlTi Global, Inc.AUM: $39.5 billionAUA: $71.4 billion"],["Wealth ManagementAUM: $34.5 billionAUA: $51.0 billion","","Strategic AlternativesAUM: $5.0 billionAUA: $20.4 billion"]]
[[/GREPCENT_TABLE]]

Wealth Management - AUM

AUM refers to the market value of all assets that we manage, provide discretionary investment advisory services on, and have execution responsibility for. Although we have investment responsibility for AUM, we include both billable (assets charged fees) and non-billable assets (assets exempt of fees) in our AUM calculation (e.g., we have agreements with certain clients under which we do not bill on certain securities or cash and cash equivalents held within their portfolio). AUM includes the value of all assets managed or supervised by operating partner subsidiaries, affiliates, and joint ventures in which the Company holds either a majority or minority stake. Our calculations of AUM and AUA may differ from the calculation methodologies of other wealth managers and, as a result, this measure may not be comparable to similar measures presented by other wealth managers.

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The table below presents the change in our total AUM for our Wealth Management segment for the periods indicated:

[[GREPCENT_TABLE]]
[["(Dollars in Millions)","","","For the Period"],["AUM","","","","","January 1, 2023 \u2013 December 31, 2023 (Successor)","","January 1, 2022 \u2013 December 31, 2022 (Predecessor)"],["Beginning Balance:","","","","","$","27,961","","","$","21,390"],["New Clients, net","","","","","1,352","","","1,472"],["Cash Flow, net","","","","","328","","","(672)"],["Market Performance, net","","","","","3,184","","","(3,769)"],["Acquisitions","","","","","1,700","","","840"],["Ending Balance:","","","","","$","34,525","","","$","19,261"],["Average AUM","","","","","$","31,243","","","$","20,326"]]
[[/GREPCENT_TABLE]]

Wealth Management - AUA

AUA includes all assets we manage as defined above, oversee, and report on. We view AUA as a core metric to measure our investment and fundraising performance as it includes non-financial assets (e.g., real estate) that are not included in AUM, investment consulting assets (not included in AUM but revenue generating) and other assets that we do not charge fees upon and do not have responsibility for investment execution responsibility, but the reporting of which is valued by our clients. AUA includes the value of all assets managed or supervised by operating partner subsidiaries, affiliates, and joint ventures in which the Company holds either a majority or minority stake. Our calculations of AUA and AUM may differ from the calculation methodologies of other wealth managers and, as a result, this measure may not be comparable to similar measures presented by other wealth managers.

The table below presents the change in our total AUA for our Wealth Management segment for the periods indicated:

[[GREPCENT_TABLE]]
[["(Dollars in Millions)","","For the Period"],["AUA","","","","January 1, 2023 \u2013 December 31, 2023 (Successor)","","January 1, 2022 \u2013 December 31, 2022 (Predecessor)"],["Beginning Balance:","","","","$","42,541","","","$","27,558"],["Change","","","","8,495","","","2,338"],["Ending Balance:","","","","$","51,036","","","$","29,896"],["Average AUA","","","","$","46,789","","","$","28,727"]]
[[/GREPCENT_TABLE]]

Strategic Alternatives - AUM/AUA

The Company’s Strategic Alternatives AUM/AUA includes the following:

•Assets managed by the Alternatives platform, including by TIG Arbitrage (AUM $2.4 billion) and the External Strategic Managers (AUA $5.3 billion);

•Co-investment real estate advisory services, where we include the value of our private market direct and co-investment real estate investments (AUA $10.1 billion); and

•Assets managed in both public and private real estate investment funds (AUM $2.6 billion) from which we generate fee revenue. The Company’s reported value of these assets are either the net asset value or the market capitalization of the fund.

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The tables below present the change in our total AUM/AUA by strategy and product for our alternatives platform for the periods indicated:

Alternatives Platform

[[GREPCENT_TABLE]]
[["(Dollars in Millions)","AUM/AUA at January 1, 2023","Gross Appreciation","New Investments","Subscriptions","Redemptions","Distributions","AUM/AUA at December 31, 2023 (Successor)","Average AUM/AUA"],["TIG Arbitrage","$","3,027","","$","290","","$","\u2014","","$","769","","$","(1,637)","","$","(67)","","$","2,382","","$","2,705"],["External Strategic Managers:"],["Real Estate Bridge Lending Strategy","2,153","","138","","\u2014","","28","","(88)","","(37)","","2,194","","2,174"],["European Equities","1,632","","40","","\u2014","","212","","(182)","","(26)","","1,676","","1,654"],["Asian Credit and Special Situation","1,498","","30","","\u2014","","85","","(197)","","(28)","","1,388","","1,443"],["External Strategic Managers Subtotal","5,283","","208","","\u2014","","325","","(467)","","(91)","","5,258","","5,271"],["Total","$","8,310","","$","498","","$","\u2014","","$","1,094","","$","(2,104)","","$","(158)","","$","7,640","","$","7,976"]]
[[/GREPCENT_TABLE]]

The table below presents the change in our total AUM/AUA for our Real Estate - Public and Private funds for our Strategic Alternatives segment for the periods indicated:

[[GREPCENT_TABLE]]
[["","","","For the Period"],["(Dollars in Millions)","","","As of January 1 \u2013 December 31, 2023 (Successor)"],["Beginning Balance:","","","$","14,130"],["Change","","","(1,410)"],["AUM/AUA at December 31, 2023*","","","$","12,720"],["Average AUM/AUA","","","$","13,425"]]
[[/GREPCENT_TABLE]]

* AUA is reported with a one quarter lag for HLIF as management fees are billed on that basis.

Components of Consolidated Results of Income

Revenues

Management/Advisory Fees

For services provided to each client account, the Company charges investment management, custody, and/or trustee fees based on the fair value of the assets of such account (“management/advisory fees”). The Company invoices clients based on the terms outlined in the signed customer contract (e.g., quarterly in arrears or in advance) based on the fair market value or net asset value. For those assets for which valuations are not available on a daily basis, the most recent valuation provided to the Company is used as the fair value for the purpose of calculating the quarterly fee.

The customer exchanges consideration to obtain services that are the output of the Company’s ordinary activities, which are investment management services provided to each client account. Further, none of the scope exceptions under ASC 606-10-15-2 apply to the management/advisory fees; therefore, they are in the scope of ASC 606.

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Incentive Fees

The Company is entitled to receive incentive fees if certain targeted returns have been achieved as stipulated in its customer contracts. The incentive fees are generally calculated using 15% to 20% of the net profit its customers earn. Incentive fees are generally calculated and recognized when it is probable that there will be no significant reversal.

Distributions from Investments

The Company has equity interests in three entities pursuant to which it is entitled to distributions based on the terms of the respective arrangements. Distributions from each investment will be recorded upon receipt of the distribution. The Company receives distributions from External Strategic Managers through profit or revenue sharing arrangements that are generated through management and incentive fees based on performance of the underlying investments.

Other fees

The Company generates arrangement fees in its co-investment division by arranging private debt or equity financing, generally in connection with an acquisition. Arrangement fees range from 0.5% to 1.75% of the equity value contributed into a transaction and are payable upon close of the deal. The Company also generates brokerage fees which are similar to arrangement fees except that they are generally paid for assisting public companies in raising capital.

Expenses

Compensation and Employee Benefits: Compensation generally includes salaries, bonuses, other performance-based compensation such as commissions, long-term deferral programs, benefits, and payroll taxes. Compensation is accrued over the related service period and long-term deferral program awards are paid out based on the various vesting dates.

General, Administrative and Other Expenses: General, administrative and other expenses include costs primarily related to professional services, occupancy, travel, communication and information services, distribution costs, and other general operating items.

Depreciation and Amortization Expenses: Fixed assets are depreciated or amortized on a straight-line basis, with the corresponding depreciation and amortization expense included within depreciation and amortization in the Company’s Consolidated Statement of Operations. The estimated useful life for leasehold improvements is the lesser of the remaining lease term or the life of the asset, while other fixed assets are generally depreciated over a period of three to fifteen years.

Interest Expense: Interest expense consists of the interest expense on our outstanding debt, amortization of deferred financing costs, and amortization of original issue discount.

Income Tax Expense: Income tax expense consists of taxes paid or payable by our consolidated operating subsidiaries. Certain of our subsidiaries are treated as flow-through entities for federal income tax purposes and, accordingly, are not subject to federal and state income taxes, as such taxes are the responsibility of certain direct and indirect owners of the flow-through entities. However, the flow-through entities are subjected to unincorporated business tax (“UBT”) and other state taxes. A portion of our operations is conducted through domestic and foreign corporations that are subject to corporate level taxes and for which we record current and deferred income taxes at the prevailing rates in the various jurisdictions in which these entities operate.

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Results of Operations

As a result of the Business Combination, the previous year figures are not comparable to current year amounts as prior year figures only include the results of operations of TWMH.

Consolidated Results of Operations – For the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

[[GREPCENT_TABLE]]
[["","For the Period","","Favorable (Unfavorable)"],["(Dollars in Thousands)","January 1, 2023 \u2013 December 31, 2023 (Successor)","","January 1, 2022 \u2013 December 31, 2022 (Predecessor)","","$ Change"],["Revenues"],["Management/Advisory fees","$","184,824","","","$","76,872","","","$","107,952"],["Incentive fees","43,377","","","\u2014","","","43,377"],["Distributions from investments","17,185","","","\u2014","","","17,185"],["Other fees / income","5,494","","","\u2014","","","5,494"],["Total Revenues","250,880","","","76,872","","","174,008"],["Expenses"],["Compensation expenses","204,052","","","51,234","","","152,818"],["Non-compensation expenses","363,165","","","31,109","","","332,056"],["Net loss before taxes","(316,337)","","","(5,471)","","","(310,866)"],["Taxes","10,534","","","(527)","","","11,061"],["Net (loss) income","$","(305,803)","","","$","(5,998)","","","$","(299,805)"]]
[[/GREPCENT_TABLE]]

Revenue

Management/Advisory fees. The increase in management and advisory fees during the year ended December 31, 2023 compared to the year ended December 31, 2022 was driven primarily by a $108.0 million increase in revenue from the inclusion of TIG and Alvarium post-Business Combination.

Incentive fees. The increase in incentive fees during the year ended December 31, 2023 compared to the year ended December 31, 2022 was driven by a $43.4 million accretive impact of the inclusion of Alvarium and TIG’s incentive fees post-Business Combination.

Distributions from investments. The increase in distributions from investments during during the year ended December 31, 2023 compared to the year ended December 31, 2022 was driven by a $17.2 million accretive impact of the inclusion of TIG’s distributions from investments post-Business Combination. Such impact included $9.5 million of revenue and profit share generated from management fees from External Strategic Managers, which are recurring in nature. The impact also includes distributions from shares of incentive fees crystallized from these managers.

Other fees / income. The increase in other fees / income during the year ended December 31, 2023 compared to the year ended December 31, 2022 was driven by a $5.5 million accretive impact of the inclusion of Alvarium’s other fees / income post Business Combination.

Expenses

Compensation Expense. The increase in compensation expense during during the year ended December 31, 2023 compared to the year ended December 31, 2022 of $152.8 million was primarily driven by increased compensation and benefits costs as a result of higher headcount following the Business Combination. Results

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for the year ended December 31, 2023 include $46.1 million of non-cash stock based compensation related to both legacy TWMH and Alvarium incentive plans as well as the issuance of AlTi equity.

Non-compensation Expense. The increase in non-compensation expenses during the year ended December 31, 2023 compared to the year ended December 31, 2022 of $332.1 million includes a $206.5 million impairment loss on goodwill and intangible assets, $42.8 million of expenses related to the Business Combination, primarily for professional services fees, a $12.9 million loss related to the exchange of warrants into common stock and $14.5 million in interest expense on the Company’s debt facility. These expenses were partially offset by a $31.1 million gain related to the change in fair value of earn-out liabilities as a result of share price changes.

Taxes

The Company's effective tax rate was 3.3% for year ended December 31, 2023 compared to (9.6)% for the year ended December 31, 2022. The difference in the effective tax rate is primarily driven by the legal entity organizational changes which occurred on account of the Business Combination, the tax impact of mark-to-market losses associated with contingent liabilities and equity consideration in the Business Combination, nondeductible professional fees incurred in connection with the Business Combination, and the impact of a forecasted valuation allowance with respect to deferred tax assets generated in the Company’s subsidiaries in the U.K.

Reconciliation of Consolidated US GAAP Financial Measures to Certain Non-US GAAP Measures

We use Adjusted Net Income and Adjusted EBITDA as non-US GAAP measures to assess and track our performance. Adjusted Net Income and Adjusted EBITDA as presented in this Annual Report are supplemental measures of our performance that are not required by, or presented in accordance with, US GAAP.

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The following tables present the reconciliation of net income as reported in our Consolidated Statement of Operations to Adjusted Net Income and Adjusted EBITDA for the periods indicated:

[[GREPCENT_TABLE]]
[["","For the Period"],["","January 1, 2023 \u2013 December 31, 2023 (Successor)","","January 1, 2022 \u2013 December 31, 2022 (Predecessor)"],["(Dollars in Thousands, except share data)","Strategic Alternatives segment","","Wealth Management segment","","Total","","Wealth Management segment (Predecessor)"],["Adjusted Net Income and Adjusted EBITDA"],["Net income before taxes","$","(263,966)","","","$","(52,371)","","","$","(316,337)","","","$","(5,471)"],["Stock based compensation (a)","2,886","","","18,564","","","21,450","","","4,223"],["Stock based compensation - Legacy (b)","13,148","","","11,549","","","24,697","","","\u2014"],["Transaction expenses (c)","20,767","","","22,058","","","42,825","","","9,110"],["Change in fair value of warrant liability (d)","6,433","","","6,433","","","12,866","","","\u2014"],["Changes in fair value of (gains)/losses on investments (e)","(2,637)","","","(1,814)","","","(4,451)","","","(247)"],["Change in fair value of earn-out liability (f)","(14,691)","","","(16,435)","","","(31,126)","","","\u2014"],["Organization streamlining cost (g)","7,666","","","4,410","","","12,076","","","\u2014"],["Impairment (non-cash) (h)","73,594","","","\u2014","","","73,594","","","\u2014"],["Impairment goodwill (i)","153,589","","","","","153,589","","","\u2014"],["(Gains)/Losses on EMI/Carried Interest (non-cash) (j)","5,017","","","\u2014","","","5,017","","","\u2014"],["EMI Adjustments (Interest, Depreciation, Taxes & Amortization) (k)","2,418","","","471","","","2,889","","","\u2014"],["Holbein compensatory earn-in (l)","\u2014","","","\u2014","","","\u2014","","","1,858"],["TWMH Partner\u2019s payout right (m)","\u2014","","","\u2014","","","\u2014","","","3,662"],["TIH Share Purchase extinguishment of debt (n)","\u2014","","","\u2014","","","\u2014","","","1,019"],["Adjusted income (loss) before taxes","4,224","","","(7,135)","","","(2,911)","","","14,154"],["Adjusted income tax (expense) benefit","(5,085)","","","98","","","(4,987)","","","\u2014"],["Adjusted Net Income","(861)","","","(7,037)","","","(7,898)","","","14,154"],["Adjusted net income attributed to non-controlling interest in subsidiaries","(387)","","","(3,165)","","","(3,552)"],["Adjusted Net Income attributable to Alvarium Tiedemann","(474)","","","(3,872)","","","(4,346)","","","14,154"],["Net income attributed to non-controlling interest in subsidiaries","(387)","","","(3,165)","","","(3,552)","","","\u2014"],["Interest expense","7,334","","","7,167","","","14,501","","","427"],["Income tax expense","(14,449)","","","3,915","","","(10,534)","","","527"],["Net income tax adjustments","19,534","","","(4,013)","","","15,521","","","(527)"],["Depreciation and amortization","7,978","","","9,061","","","17,039","","","2,339"],["Adjusted EBITDA","$","19,536","","","$","9,093","","","$","28,629","","","$","16,920"]]
[[/GREPCENT_TABLE]]

(a)Add-back of non-cash expense related to awards of Class A Common stock (approved post-transaction).

(b)Add-back of non-cash expense related to awards of Class A Common stock (approved pre-transaction).

(c)Add-back of transaction expenses related to the Business Combination, including professional fees.

(d)Represents the change in fair value of the warrant liability.

(e)Represents the change in unrealized gains/losses related primarily to Investments held at fair value and changes in fair value of the TRA liability (Successor) and changes in fair value to the interest rate swap (Predecessor).

(f)Represents the change in fair value of the earn-out liability.

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(g)Represents cost to implement organization change to derive cost synergy.

(h)Represents impairment of intangible asset associated with the deconsolidation of AHRA of $29.4 million, impairment of LRA of $23.5 million, impairment of equity method investments of $15.6 million and amortization of carried interest of $4.1 million.

(i)Represents the impairment of goodwill.

(j)Represents the amortization related to the step-up in equity method investments.

(k)Represents reported interest, depreciation, amortization, and tax adjustments of the Company's equity method investments.

(l)Add-back of cash portion of the compensatory earn-ins related to the Holbein acquisition as discussed in Note 5, (Equity-Based Compensation). The $3.7 million of compensatory earn-ins is settled in 50% equity and 50% cash. Add-back of equity portion of compensatory earn-ins of $1.9 million is included in the equity settled share-based payments combined EBITDA adjustment.

(m)Represents the change in the TWMH partner’s payout related to the Business Combination.

(n)Represents forgiveness of a promissory note of a certain shareholder of TIH upon the sale of his shares in TIH to TWMH.

Liquidity and Capital Resources

Management assesses liquidity in terms of our ability to generate cash to fund operating, investing, and financing activities. Management takes prudent approach to ensure the Company's liquidity will continue to be sufficient for its foreseeable working capital needs, contractual obligations, distribution payments and strategic initiatives.

On January 3, 2023, concurrent with the consummation of the Business Combination, the Company entered into a $250.0 million credit facility with a syndicate led by BMO Capital Markets Corp. The facility, which has a term of five years and is comprised of a $150.0 million revolving credit facility and a $100 million term loan facility, was to be used to pay down subsidiary debt, to fund growth initiatives and for working capital. As of December 31, 2023, the Company had $95.0 million outstanding on the Term Loan facility and $93.8 million outstanding on the Revolving Credit Facility. See Note 15 (Debt, net of unamortized deferred financing costs).

As a result of the Business Combination, the previous year figures are not comparable to current year amounts as prior year figures only include the results of operations of Tiedemann Wealth Management Holdings, LLC.

Cash Flows

For the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

The following tables and discussion summarize our Consolidated Statement of Cash Flows by activity attributable to AlTi. Negative amounts represent an outflow or use of cash.

[[GREPCENT_TABLE]]
[["","For the Period","","Favorable (unfavorable)"],["(Dollars in Thousands)","January 1, 2023 \u2013 December 31, 2023 (Successor)","","January 1, 2022 \u2013 December 31, 2022 (Predecessor)","","$ Change"],["Net cash used in operating activities","$","(81,706)","","","$","6,858","","","$","(88,564)"],["Net cash used in investing activities","$","(132,947)","","","$","(7,229)","","","(125,718)"],["Net cash provided by financing activities","$","36,019","","","$","(345)","","","36,364"],["Effect of exchange rate on cash","$","2,793","","","$","(193)","","","2,986"],["Net decrease in cash and cash equivalents","$","(175,841)","","","$","(909)","","","$","(174,932)"]]
[[/GREPCENT_TABLE]]

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For the year ended December 31, 2023, cash and cash equivalents at the beginning of the period of $194.1 million included the proceeds from the PIPE Investors related to the issuance of shares of Class A Common Stock concurrently with the closing of the Business Combination, remaining cash held in the trust account, and the beginning balance sheet cash from each of Alvarium, TIG, and TWMH.

Operating Activities

Our cash inflows from operating activities comprise of cash collected through management and advisory fees, incentive fees, distributions from investments and other income/fees. Our cash outflows from operating activities consist of operating expenses, the most significant components of which included compensation and benefits and professional fees for the year ended December 31, 2023. Our operating net cash outflow of $81.7 million for the year ended December 31, 2023 was driven by the payment of fees related to the business combination. the payout of 2022 incentive compensation and other operating expenses.

Investing Activities

Cash used in investing activities primarily related to the acquisition of TWMH and TIG historical equity during the year ended December 31, 2023. Additionally, the Company made incremental investments of $12.0 million and $3.4 million into Zebedee and Arkkan, respectively, an acquisition of AL Wealth Partners for $14.4 million and the remaining 70% acquisition of AWMS for $4.4 million.

Financing Activities

Cash flows from financing activities during the year ended December 31, 2023 were primarily driven by issuance of the Term Loan and Revolving Credit Facility totaling $188.7 million, which were used to pay down existing debt of $141.9 million. Additionally, we used approximately $4.2 million to purchase shares issued as compensation and received $5.8 million from the exercise of warrants.

Future Sources and Uses of Liquidity

In the normal course of business, we may engage in off-balance sheet arrangements, including transactions in derivatives, guarantees, commitments, indemnifications, and potential contingent repayment obligations. We do not have any off-financial position arrangements that would require us to fund losses or guarantee target returns to clients.

Contractual Obligations

Tax Receivable Agreement

As discussed in Note 20 (Commitments and Contingencies) to our consolidated financial statements included in this Annual Report, we may in the future be required to make payments under the TRA.

Pursuant to the TRA, the Company will pay certain parties to the Business Combination 85% of certain tax benefits, if any, that it realizes (or in certain cases is deemed to realize) as a result of any increase in tax basis of the assets of Alvarium Tiedemann related to the Business Combination.

Amounts payable under the TRA are contingent upon (i) the generation of taxable income over the life of the TRA, (ii) the tax rates in effect as of time periods in which tax benefits are used, and (iii) certain terms governing the rate of interest to be applied to payments under the TRA.

As of December 31, 2023, the liability associated with the TRA was approximately $17.6 million and consisted entirely of a liability recorded under ASC 805 associated with the Business Combination, and as such, is presented at fair value through the discount of future anticipated payments. Payments under the TRA that are on account of liabilities arising in connection with the Business Combination are revalued at the end of each reporting period with the gain or loss recognized in earnings.

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In connection with the TRA, certain parties to the Business Combination who received Class B Units in Umbrella have the ability to exchange Class B Units in Umbrella for shares of Class A Common Stock in the Company. Class B Paired Interests may be exchanged for Class A Common Stock on a 1:1 exchange basis. These exchanges are anticipated to be treated as taxable exchanges which may provide an increase in the tax basis of the assets of the Company and therefore provide for additional payments under the TRA. TRA liabilities that are generated on account of future exchanges will be recorded under ASC 450, Contingencies. On August 31, 2023, holders of Class B Units exchanged 1,813,248 Class B Paired Interests to the Company, in exchange for shares of Class A Common Stock on a 1:1 basis totaling an amount equal to $7.31 multiplied by the total number of shares of Class A Common Stock received at the time of the transaction.

Payments under the TRA will continue until all such tax benefits have been utilized or expired unless (i) the Company exercises its right to terminate the TRA and pays recipients an amount representing the present value of the remaining payments, (ii) there is a change of control or (iii) the Company breaches any of the material obligations of the TRA, in which case all obligations will generally be accelerated and due as if the Company had exercised its right to terminate the TRA. In each case, if payments are accelerated, such payments will be based on certain assumptions, including that the Company will have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions.

The estimate of the timing and amount of future payments under the TRA involves several assumptions that do not account for the significant uncertainties associated with those potential payments, including an assumption that the Company will have sufficient taxable income in the relevant tax years to utilize the tax benefits that would give rise to an obligation to make payments.

As of December 31, 2023, assuming no material changes in the relevant tax laws and that the Company generates sufficient taxable income to realize the full tax benefit of the increased amortization resulting from the increase in tax basis of certain of AlTi’s assets, we expect to pay approximately $17.6 million under the TRA. Future changes in the fair value of the TRA liability will be recognized in earnings. Any future cash savings and related payments under the TRA due to subsequent exchanges of Class B Units for shares of Class A Common Stock would be accounted for separately from the amount related to the Business Combination.

Warrants

Prior to the Business Combination, the Company issued warrants to purchase shares of Class A Common Stock at a price of $11.50 per share. Throughout the period from January 1, 2023 to March 31, 2023, 428,626 Warrants were exercised. On April 3, 2023, 78,864 Warrants were exercised. On June 7, 2023, the Company closed an offer and consent solicitation and entered into a warrant amendment, pursuant to which the remaining 19,892,387 Warrants were exchanged for 4,962,147 shares of Class A Common Stock. The exercises and exchanges throughout the period from January 1, 2023 to June 30, 2023 resulted in an increase in Additional Paid-in-Capital amount of $29.5 million. Following the exchanges, none of the Warrants were outstanding as of December 31, 2023.

Business Combination Earn-out

Under the terms of the Business Combination, upon Closing, the Sponsor and the selling shareholders of TWMH, TIG, and Alvarium became entitled to receive earn-out shares contingent on various share price milestones. Additionally, upon a change of control of the Company, the share price milestones will be deemed to have been met and all the Business Combination Earn-out Securities will be payable to the earn-out holders. The earn-out shares are precluded from being considered indexed to the Company’s own stock and are recognized as a liability at fair value with changes in fair value recognized in earnings. As of December 31, 2023, the fair value of the earn-out shares was $62.4 million. See Note 2 (Summary of Significant Accounting Policies) for additional detail.

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AWMS Earn-out Liability

On August 2, 2023, the Company acquired the remaining 70% of the issued and outstanding ownership and membership interests of AWMS, increasing its interest from 30% to 100%. The AWMS Acquisition was accounted for using the acquisition method of accounting and the fair value of the total purchase consideration transferred was $16.8 million. The total purchase consideration transferred consists of cash consideration, equity consideration, deferred cash consideration, earn-out consideration, (or AWMS earn-out liability), and the payment of assumed liabilities. As of December 31, 2023, the AWMS earn-out liability of $1.1 million is reported in Other liabilities in the Consolidated Statement of Financial Position. Since the AWMS earn-out liability meets the definition of a derivative, it is recorded at fair value as a derivative liability on the Consolidated Statement of Financial Position and measured at fair value at each reporting date in accordance with ASC 820, Fair Value Measurement, with changes in fair value to be recognized in Gain (loss) on earn-out liability in the Consolidated Statement of Operations and in Fair value of earn-out liability in the Consolidated Statement of Cash Flows in the period of change.

Indemnification Arrangements

In the normal course of business, the Company enters into contracts that contain indemnities for related parties of the Company, persons acting on behalf of the Company or such related parties and third parties. The terms of the indemnities vary from contract to contract and the Company’s maximum exposure under these arrangements cannot be determined and has not been recorded in the Consolidated Statement of Financial Position. As of December 31, 2023, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of material loss to be remote.

Litigation

From time to time, we may be named as a defendant in legal or regulatory actions. Although there can be no assurance of the outcome of such matters, management’s current assessment is that no loss contingency reserve is required to be recorded as of December 31, 2023 for any potential liability related to any current legal or regulatory proceeding or claim that would individually or in the aggregate materially affect our results of operations, financial condition, or cash flows.

Home REIT is a real estate investment trust company listed on the London Stock Exchange. AFM UK was its alternative investment fund manager (“AIFM”) until August 21, 2023 and AHRA was its investment adviser until June 30, 2023. AFM UK is a wholly owned subsidiary of the Company. AHRA was owned by ARE (another wholly owned subsidiary of the Company) up until December 30, 2022, when it was sold. AlTi was formed on January 3, 2023, through a business combination transaction that included certain legacy Alvarium companies, including AFM UK. While the sale of AHRA occurred prior to the Business Combination, under GAAP, its results were required to be consolidated in our financial statements until June 30, 2023, when it was deconsolidated. For UK regulatory purposes, up until June 30, 2023, AHRA was permitted to perform certain limited regulated activities as an “appointed representative” of its regulated principal firm, ARE (which is authorized and regulated by the UK FCA).

Since November 2022, Home REIT and AHRA have been the subject of a series of allegations in the UK media regarding Home REIT’s operations, triggered by a report issued by a short seller. Home REIT’s stock price fell materially as a result and its shares are currently suspended from trading. Following the publication of the short seller report, a UK law firm announced that it was seeking current and former shareholders of Home REIT to potentially bring claims in connection with the allegations. The announcement states that claims will likely be brought against Home REIT itself, its directors, and AFM UK.

On October 6, 2023, a pre-action letter of claim was received by, among others, AFM UK and ARE asserting potential claims against those entities relating to the above matters (a pre-action letter of claim is required to be sent by a claimant to a potential defendant under the Practice Direction on Pre-Action Protocols and Conduct contained in the United Kingdom’s Ministry of Justice Civil Procedure Rules prior to a claimant commencing litigation in the UK). The pre-action letter was sent by a law firm acting on behalf of a group of current and

93

former shareholders in Home REIT. The pre-action letter does not provide details of amounts being claimed from any of the potential defendants (whether jointly or severally), and it is not possible at this point in time for us to reliably assess what the quantum of such claims might be, or AFM UK’s and ARE’s potential exposure, though they may potentially be material to the Company. If any litigation or other action is commenced against AFM UK and/or ARE, we intend to defend ourselves in any such matters vigorously. However, if any claims were commenced, we would anticipate that such claims may involve complex questions of law and fact and we may incur significant legal expenses in defending such litigation.

HLIF is a private fund which pursues a similar investment strategy to Home REIT. In the period from June 30, 2022 to December 31, 2023, the estimated value of its underlying real estate investment portfolio declined by approximately 50%, primarily due to a decrease in the timely collection of rents on the underlying portfolio, but also due to higher interest rates and other macro-economic factors. HLIF is managed by AFM UK as its AIFM and ‘authorized corporate director’ and is advised by SHIA. Like AHRA, SHIA was permitted to perform certain limited regulated activities as an “appointed representative” of its regulated principal firm, ARE.

In February 2024, the UK FCA commenced investigations into the historic performance of certain group entities, in their services to Home REIT and/or HLIF, and whether they breached certain civil or criminal regulatory rules and/or principles. The investigations are focused primarily on whether any false or misleading statements were made in relation to Home REIT and/or HLIF and/or whether these group entries breached other FCA rules and/or principles. The commencement of the investigations does not mean that the UK FCA has determined that any such breaches have occurred. However, it is possible that the UK FCA may determine that certain breaches have occurred and it may seek to impose financial penalties or other outcomes on one or more group entities, that may potentially be material to the Company. We intend to cooperate fully with the UK FCA as it conducts the investigations. We are not able to estimate how long it might take for the UK FCA to complete such investigations, but it is possible that the investigations may continue for a prolonged period, potentially over several years.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with US GAAP. In applying many of these accounting principles, we need to make assumptions, estimates, and/or judgments that affect the reported amounts of assets, liabilities, revenues, and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates, and/or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. Actual results may also differ from our estimates and judgments due to risks and uncertainties and changing circumstances, including uncertainty in the current economic environment due to geopolitical tensions, changes in market conditions, or other relevant factors. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. For a summary of our significant accounting policies and estimates, see Note 2 (Summary of Significant Accounting Policies), to our consolidated financial statements included in this Annual Report.

Estimation of Fair Values

Investments at Fair Value – External Strategic Managers: The fair values of our Investments in External Strategic Managers were determined using significant unobservable inputs. The assumptions used could have a material impact on the valuation of these assets and include our best estimates of expected future cash flows and an appropriate discount rate. Changes in the estimated fair values of these assets may have a material impact on our results of operations in any given period, as any decreases in these assets have a corresponding negative impact on our US GAAP results of operations in the period in which the changes occur.

TRA Liability: We carry a portion of our TRA liability at fair value, as it is a contingent consideration related to the Business Combination. The valuation of the TRA liability is sensitive to our expectation of future cash savings that we may ultimately realize related to our tax goodwill and other intangible assets deductions. We then apply a discount rate that we believe is appropriate given the nature of and expected timing of payments of

94

the liability. A decrease in the discount rate assumption would result in an increase in the fair value estimate of the liability, which would have a correspondingly negative impact on our US GAAP results of operations. However, payments under the TRA are ultimately only made to the extent we realize the offsetting cash savings on our income taxes due to the tax goodwill and other intangibles deduction. 

Business Combination Earn-out Liability and AWMS Earn-out Liability: The fair values of our Business Combination Earn-out Securities liability and our AWMS earn-out liability were determined using various significant unobservable inputs. The assumptions used could have a material impact on the valuation of these liabilities, and include our best estimate of expected volatility, expected holding periods and appropriate discounts for lack of marketability. Changes in the estimated fair values of these liabilities may have material impacts on our results of operations in any given period, as any increases in these liabilities have a corresponding negative impact on our US GAAP results of operations in the period in which the changes occur. See Note 2 (Summary of Significant Accounting Policies) for additional details.

Equity-based Compensation: The Company issued stock grants to certain employees as bonus compensation. The fair value of the grants was determined based on the share price on the date of issuance.

Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations: The determination of the fair values of assets acquired and liabilities assumed in business combinations involves significant judgment and estimation. We utilize various valuation techniques, including discounted cash flow approach and market approach, to assess the fair value of identifiable assets and liabilities. These valuation methodologies incorporate assumptions regarding future cash inflows and outflows, discount rates, useful lives of assets, market multiples, and the realization of tax assets. Additionally, we allocate the purchase price consideration among identifiable assets acquired and liabilities assumed, considering any contingent consideration. The realization of tax assets is assessed based on historical performance, future taxable income projections, and applicable tax laws and regulations. Uncertainties and contingencies inherent in the fair value measurement process are carefully evaluated and disclosed as appropriate to ensure transparency in our financial reporting.

Fair Value of Reporting Units for Goodwill Impairment Testing: In assessing goodwill impairment, we determine the fair value of reporting units using established valuation methodologies, primarily the discounted cash flow approach and market approach. The income approach involves discounting future cash flows generated by the reporting units, considering key assumptions such as revenue growth rates, discount rates, terminal value calculations, and market multiples. Goodwill is allocated to reporting units, and impairment is evaluated by comparing the carrying amount of goodwill to the fair value of the reporting units. We conduct regular assessments for triggering events or changes in circumstances that may necessitate goodwill impairment testing. These disclosures ensure stakeholders understand the methodologies, assumptions, and sensitivities involved in our goodwill impairment testing process.

We conduct sensitivity analyses on key inputs and assumptions used in fair value measurements and critical accounting estimates to assess the potential impact on financial results. Changes in assumptions, such as discount rates, growth rates, or market multiples, are carefully evaluated to understand their effect on the fair value of assets, liabilities, or reporting units. Our sensitivity analysis considers a range of potential outcomes and their implications on financial reporting. Mitigating factors and risk management strategies are employed to address uncertainties and enhance the reliability of our financial disclosures. These disclosures provide stakeholders with insight into the robustness of our valuation methodologies and the degree of uncertainty inherent in our financial reporting process.

Income Taxes

Significant judgment is required in determining the provision for income taxes and in evaluating income tax positions, including evaluating uncertainties. We recognize the income tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained upon examination, including resolution of any related appeals or litigation, based on the technical merits of the positions. The tax benefit is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If a

95

tax position is not considered more likely than not to be sustained, then no benefits of the position are recognized. The Company’s income tax positions are reviewed and evaluated quarterly to determine whether or not we have uncertain tax positions that require financial statement recognition or de-recognition.

Deferred tax assets and liabilities are recognized for the expected future tax consequences, using currently enacted tax rates, of differences between the carrying amount of assets and liabilities and their respective tax basis. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Variable Interest Entities

The determination of whether to consolidate a VIE under US GAAP requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interests. To make these judgments, we conduct an analysis, on a case-by-case basis, of whether we are the primary beneficiary and are therefore required to consolidate an entity. We continually reconsider whether we should consolidate a VIE. Upon the occurrence of certain events, such as modifications to organizational documents and investment management agreements of our products, we will reconsider our conclusion regarding the status of an entity as a VIE. Our judgement when analyzing the status of an entity and whether we consolidate an entity could have a material impact on individual line items within our consolidated financial statements, as a change in our conclusion would have the effect of grossing up the assets, liabilities, revenues and expenses of the entity being evaluated. In light of the relevantly insignificant direct and indirect investments into our products, the likelihood of a reasonable change in our estimation and judgement would likely not result in a change in our conclusions to consolidate or not consolidate any VIEs to which we have exposure.

Impact of Changes in Accounting on Recent and Future Trends

We believe that none of the changes to US GAAP that went into effect during the year ended December 31, 2023, or that have been issued but that we have not yet adopted have substantively impacted our recent trends or are expected to substantively impact our future trends.