Pzena Investment Management, Inc. (Form: 10-Q, Received: 05/06/2016 16:57:52)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2016



o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______to______

Commission file number 001-33761

PZENA INVESTMENT MANAGEMENT, INC.

(Exact Name of Registrant as Specified in its Charter)



Delaware		20-8999751
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

320 Park Avenue

New York, New York 10022

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (212) 355-1600

Not Applicable

(Former Address of Principal Executive Offices) (Zip Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x

As of May 5, 2016, there were 15,067,443 outstanding shares of the registrant’s Class A common stock, par value $0.01 per share.

As of May 5, 2016, there were 52,164,667 outstanding shares of the registrant’s Class B common stock, par value $0.000001 per share.

Table of Contents

PZENA INVESTMENT MANAGEMENT, INC.

FORM 10-Q

TABLE OF CONTENTS



			Page
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
		Consolidated Statements of Financial Condition of Pzena Investment Management, Inc. as of March 31, 2016 (unaudited) and December 31, 2015	1
		Consolidated Statements of Operations (unaudited) of Pzena Investment Management, Inc. for the Three Months Ended March 31, 2016 and 2015	2
		Consolidated Statements of Comprehensive Income (unaudited) of Pzena Investment Management, Inc. for the Three Months Ended March 31, 2016 and 2015	3
		Consolidated Statement of Changes in Equity (unaudited) of Pzena Investment Management, Inc. for the Three Months Ended March 31, 2016	4
		Consolidated Statements of Cash Flows (unaudited) of Pzena Investment Management, Inc. for the Three Months Ended March 31, 2016 and 2015	5
		Notes to the Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		41
Item 4.	Controls and Procedures		43

	PART II — OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 6.	Exhibits		45

SIGNATURES

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements provide our current expectations, or forecasts, of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “ongoing,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in Item 1A, “Risk Factors” in Part I of our Annual Report on Form 10-K for our fiscal year ended December 31, 2015 . Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to publicly revise any forward-looking statements to reflect circumstances or events after the date of this Quarterly Report, or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission, or SEC, after the date of this Quarterly Report on Form 10-Q.

Forward-looking statements include, but are not limited to, statements about:


•	our ability to respond to global economic, market, business and geopolitical conditions;


•	our anticipated future results of operations and operating cash flows;


•	our successful formulation and execution of business strategies and investment policies;


•	our financing plans and the availability of short- or long-term borrowing, or equity financing;


•	our competitive position and the effects of competition on our business;


•	our ability to identify and capture potential growth opportunities available to us;


•	the effective recruitment and retention of our key executives and employees;


•	our expected levels of compensation for our employees;


•	our potential operating performance, achievements, efficiency, and cost reduction efforts;


•	our expected tax rate;


•	changes in interest rates;


•	our expectation with respect to the economy, capital markets, the market for asset management services, and other industry trends; and


•	the impact of future legislation and regulation, and changes in existing legislation and regulation, on our business.

The reports that we file with the SEC, accessible on the SEC’s website at www.sec.gov , identify additional factors that can affect forward-looking statements.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PZENA INVESTMENT MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share and per-share amounts)



	As of
	March 31, 2016			December 31, 2015
	(unaudited)
ASSETS
Cash and Cash Equivalents	$	20,470		$	35,417
Restricted Cash	3,418			3,552
Due from Broker	205			297
Advisory Fees Receivable	21,305			22,248
Investments	18,302			27,452
Receivable from Related Parties	1,189			1,054
Other Receivables	590			589
Prepaid Expenses and Other Assets	1,031			802
Deferred Tax Asset, Net of Valuation Allowance of $52,908 and $53,968, respectively	15,217			14,995
Property and Equipment, Net of Accumulated Depreciation of $1,470 and $1,202, respectively	7,713			7,903
TOTAL ASSETS	$	89,440		$	114,309
LIABILITIES AND EQUITY
Liabilities:
Accounts Payable and Accrued Expenses	$	9,856		$	7,885
Due to Broker	181			30
Securities Sold Short, at Fair Value	2,555			2,231
Liability to Selling and Converting Shareholders	15,953			15,075
Deferred Compensation Liability	900			2,896
Other Liabilities	823			730
TOTAL LIABILITIES	30,268			28,847
Equity:
Preferred Stock (Par Value $0.01; 200,000,000 Shares Authorized; None Outstanding)	—			—
Class A Common Stock (Par Value $0.01; 750,000,000 Shares Authorized; 15,142,771 and 15,218,355 Shares Issued and Outstanding in 2016 and 2015, respectively)	151			152
Class B Common Stock (Par Value $0.000001; 750,000,000 Shares Authorized; 52,122,683 and 52,089,472 Shares Issued and Outstanding in 2016 and 2015, respectively)	—			—
Additional Paid-In Capital	5,224			5,819
Retained Earnings	9,224			12,453
Accumulated Other Comprehensive Loss	(3		)	(2		)
Total Pzena Investment Management, Inc.'s Equity	14,596			18,422
Non-Controlling Interests	44,576			67,040
TOTAL EQUITY	59,172			85,462
TOTAL LIABILITIES AND EQUITY	$	89,440		$	114,309

See accompanying notes to unaudited consolidated financial statements.

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PZENA INVESTMENT MANAGEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per-share amounts)



	For the Three Months Ended March 31,
	2016			2015
REVENUE	$	25,838		$	28,653
EXPENSES
Compensation and Benefits Expense	12,498			12,070
General and Administrative Expense	3,044			3,603
Total Operating Expenses	15,542			15,673
Operating Income	10,296			12,980
OTHER INCOME/ (EXPENSE)
Interest Income	9			14
Dividend Income	87			118
Gains/ (Losses) and Other Investment Income	104			15
Change in Liability to Selling and Converting Shareholders	(878		)	(245		)
Other Expense	(40		)	(191		)
Total Other Expense	(718		)	(289		)
Income Before Income Taxes	9,578			12,691
Income Tax Expense	220			1,088
Net Income	9,358			11,603
Less: Net Income Attributable to Non-Controlling Interests	7,736			9,981
Net Income Attributable to Pzena Investment Management, Inc.	$	1,622		$	1,622

Net Income for Basic Earnings per Share	$	1,622		$	1,622
Basic Earnings per Share	$	0.11		$	0.12
Basic Weighted Average Shares Outstanding ¹	15,192,511			13,057,714

Net Income for Diluted Earnings per Share	$	6,510		$	7,927
Diluted Earnings per Share	$	0.10		$	0.12
Diluted Weighted Average Shares Outstanding ¹	68,496,511			67,982,245

Cash Dividends per Share of Class A Common Stock	$	0.32		$	0.32

^{1 The Company issues restricted shares of Class A common stock and restricted Class B units that have non-forfeitable dividend rights. Under the "two-class method," these shares and units are considered participating securities and are required to be included in the computation of basic and diluted earnings per share.}

See accompanying notes to unaudited consolidated financial statements.

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PZENA INVESTMENT MANAGEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)



	For the Three Months Ended March 31,
	2016			2015
NET INCOME	$	9,358		$	11,603
OTHER COMPREHENSIVE LOSS
Foreign Currency Translation Adjustment	(5		)	—
Total Other Comprehensive Loss	(5		)	—
Comprehensive Income	9,353			11,603
Less: Comprehensive Income Attributable to Non-Controlling Interests	7,732			9,981
Total Comprehensive Income Attributable to Pzena Investment Management, Inc.	$	1,621		$	1,622

See accompanying notes to unaudited consolidated financial statements.

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PZENA INVESTMENT MANAGEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(in thousands, except share and per-share amounts)



	Shares of Class A Common Stock		Shares of Class B Common Stock		Class A Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Non-Controlling Interests			Total Equity
Balance at December 31, 2015	15,218,355		52,089,472		$	152		$	5,819		$	(2	)	$	12,453		$	67,040		$	85,462
Adjustment for the Cumulative Effect of Applying ASU 2015-02 for the Deconsolidation of a Legal Entity	—		—		—			—			—			—			(10,835		)	(10,835		)
Adjusted Balance at January 1, 2016	15,218,355		52,089,472		152			5,819			(2		)	12,453			56,205			74,627
Amortization of Non-Cash Compensation	24,934		22,723		—			190			—			—			511			701
Sale of Shares under Equity Incentive Plan	—		12,695		—			11			—			—			37			48
Directors' Share Grants	—		—		—			40			—			—			138			178
Net Income	—		—		—			—			—			1,622			7,736			9,358
Foreign Currency Translation Adjustments	—		—		—			—			(1		)	—			(4		)	(5		)
Repurchase and Retirement of Class A Common Stock	(100,518	)	—		(1		)	(752		)	—			—			—			(753		)
Repurchase and Retirement of Class B Units	—		(2,207	)	—			(4		)	—			—			(15		)	(19		)
Class A Cash Dividends Declared and Paid ($0.32 per share)	—		—		—			—			—			(4,851		)	—			(4,851		)
Contributions from Non-Controlling Interests	—		—		—			—			—			—			271			271
Distributions to Non-Controlling Interests	—		—		—			—			—			—			(20,383		)	(20,383		)
Other	—		—		—			(80		)	—			—			80			—
Balance at March 31, 2016	15,142,771		52,122,683		$	151		$	5,224		$	(3	)	$	9,224		$	44,576		$	59,172

See accompanying notes to unaudited consolidated financial statements.

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PZENA INVESTMENT MANAGEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



	For the Three Months Ended March 31,
	2016			2015
OPERATING ACTIVITIES
Net Income	$	9,358		$	11,603
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation	267			65
Non-Cash Compensation	1,601			1,473
Directors' Share Grants	178			146
(Gains)/ Losses and Other Investment Income	(104		)	(15		)
Foreign Currency Translation Adjustments	(5		)	—
Change in Liability to Selling and Converting Shareholders	878			245
Deferred Income Taxes	(223		)	626
Changes in Operating Assets and Liabilities:
Advisory Fees Receivable	943			(75		)
Due from Broker	89			(607		)
Restricted Cash	134			(675		)
Prepaid Expenses and Other Assets	(286		)	(262		)
Non-Cash Compensation Modification	—			(713		)
Due to Broker	144			54
Accounts Payable, Accrued Expenses, and Other Liabilities	(749		)	849
Change in Lease Liability	—			(106		)
Purchases of Equity Securities and Securities Sold Short	(4,973		)	(17,511		)
Proceeds from Equity Securities and Securities Sold Short	4,909			12,824
Net Cash Provided by Operating Activities	12,161			7,921
INVESTING ACTIVITIES
Purchases of Investments	(1,741		)	(4,535		)
Proceeds from Sale of Investments	759			5,771
Payments to Related Parties	(135		)	(198		)
Purchases of Property and Equipment	(77		)	(3,290		)
Net Cash Used in Investing Activities	(1,194		)	(2,252		)
FINANCING ACTIVITIES
Repurchase and Retirement of Class A Common Stock	(753		)	(825		)
Repurchase and Retirement of Class B Units	(19		)	(42		)
Sale of Shares under Equity Incentive Plan	48			—
Option Exercise	—			1,688
Distributions to Non-Controlling Interests	(20,383		)	(20,653		)
Contributions from Non-Controlling Interests	271			336
Dividends	(4,851		)	(4,177		)
Net Cash Used in Financing Activities	(25,687		)	(23,673		)
NET CHANGE IN CASH	$	(14,720	)	$	(18,004	)
CASH AND CASH EQUIVALENTS - Beginning of Period	$	35,417		$	39,109
Adjustment for the Cumulative Effect of Applying ASU 2015-02 for the Deconsolidation of a Legal Entity	(227		)	—
Net Change in Cash	(14,720		)	(18,004		)
CASH AND CASH EQUIVALENTS - End of Period	$	20,470		$	21,105
Supplementary Cash Flow Information:
Income Taxes Paid	$	246		$	409

See accompanying notes to unaudited consolidated financial statements.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1—Organization

Pzena Investment Management, Inc. (the “Company”) is the sole managing member of its operating company, Pzena Investment Management, LLC (the “operating company”). As a result, the Company: (i) consolidates the financial results of the operating company and reflects the membership interests that it does not own as a non-controlling interest in its consolidated financial statements; and (ii) recognizes income generated from its economic interest in the operating company’s net income.

The operating company is an investment adviser registered under the Investment Advisers Act of 1940 and is headquartered in New York, New York. As of March 31, 2016 , the operating company managed assets in a variety of value-oriented investment strategies across a wide range of market capitalizations in both U.S. and non-U.S. capital markets.

The Company also serves as the general partner of Pzena Investment Management, LP, a partnership formed with the objective of aggregating employee ownership in the operating company into one entity.

The Company, through its interest in the operating company, has consolidated the results of operations and financial condition of the following entities as of March 31, 2016 :



		Ownership at
Legal Entity	Type of Entity (Date of Formation)	March 31, 2016
Pzena Investment Management, Pty	Australian Proprietary Limited Company (12/16/2009)	100.0	%
Pzena Financial Services, LLC	Delaware Limited Liability Company (10/15/2013)	100.0	%
Pzena Investment Management, LTD	England and Wales Private Limited Company (01/08/2015)	100.0	%
Pzena Investment Management Special Situations, LLC	Delaware Limited Liability Company (12/01/2010)	99.9	%
Pzena Mid Cap Focused Value Fund, a series of Advisors Series Trust	Open-end Management Investment Company, series of Delaware Statutory Trust (3/31/2014)	87.6	%
Pzena Long/Short Value Fund, a series of Advisors Series Trust	Open-end Management Investment Company, series of Delaware Statutory Trust (3/31/2014)	81.4	%
Pzena International Value Service, a series of Pzena Investment Management International, LLC	Delaware Limited Liability Company (12/22/2003)	53.5	%

Note 2—Significant Accounting Policies

Basis of Presentation:

Principles of Consolidation:

The consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and related Securities and Exchange Commission (“SEC”) rules and regulations. The Company’s policy is to consolidate those entities in which it has a direct or indirect controlling financial interest based on either a variable interest model or a voting interest model. As such, the Company consolidates majority-owned subsidiaries in which it has a controlling financial interest, and certain investment vehicles the operating company sponsors for which it is the investment adviser that are considered to be variable-interest entities (“VIEs”) and for which the Company is deemed to be the primary beneficiary.

For equity investments where the Company does not control the investee, and where it is not the primary beneficiary of a VIE, but can exert significant influence over the financial and operating policies of the investee, the Company follows the equity method of accounting. The evaluation of whether the Company exerts control or significant influence over the financial and operating policies of the investee requires significant judgment based on the facts and circumstances surrounding each investment. Factors considered in these evaluations may include the type of investment, the legal structure of the investee, the terms of the investment agreement, or other agreements with the investee.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

Adoption of ASU 2015-02

Effective January 1, 2016, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update No. 2015-02, Amendments to the Consolidation Analysis ("ASU 2015-02") under the modified retrospective approach. Restatement of prior period results is not required.

For legal entities evaluated for consolidation, the Company must determine whether interests it holds and fees paid to it qualify as a variable interest. Pursuant to ASU 2015-02, fees, including fees that are determined based on expense reimbursements, that are customary and commensurate with the level of services provided are not considered a variable interest when the Company does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity. The Company factors in all economic interests, including proportionate interests through related parties, to determine if fees are considered a variable interests. If it is determined that the Company does not have a variable interest in the entity, no further analysis is required and the Company does not consolidate the entity. If it is determined that the Company has a variable interest, it considers its direct economic interests and the proportionate indirect interests through related parties to determine if it is the primary beneficiary of the VIE.

Also pursuant to ASU 2015-02, the FASB clarifies the treatment of entities structured as series funds which comply with the requirements included in the Investment Company Act of 1940 for registered mutual funds. These entities are now considered voting interest entities because the shareholders are deemed to have the ability to direct the activities of the fund that most significantly impact the fund's economic performance.

As a result of the adoption of ASU 2015-02, the Company deconsolidated certain previously consolidated entities as the Company either did not have a variable interest in the entity or the Company did not own more than 50% of a series fund now required to be considered for consolidation under the voting interest model. In addition, upon adoption of ASU 2015-02, the Company is no longer considered to have fee-based variable interests in certain private investment partnerships the operating company sponsors and these entities are no longer considered VIE's.

Consolidated Entities

The Company consolidates the financial results of the operating company and records in its own equity its pro-rata share of transactions that impact the operating company’s net equity, including unit and option issuances, repurchases, and retirements. The operating company’s pro-rata share of such transactions are recorded as an adjustment to additional paid-in capital or non-controlling interests, as applicable, on the consolidated statements of financial position.

The majority-owned subsidiaries in which the Company, through its interest in the operating company, has a controlling financial interest and the VIEs for which the Company is deemed to be the primary beneficiary are collectively referred to as “consolidated subsidiaries.” Non-controlling interests recorded on the consolidated financial statements of the Company include the non-controlling interests of the outside investors in each of these entities, as well as those of the operating company. All significant inter-company transactions and balances have been eliminated through consolidation.

During 2014, the Company provided the initial cash investment for the Pzena Mutual Funds in an effort to generate an investment performance track record to attract third-party investors. Due to their series fund structure, registration, and compliance with the requirements of the Investment Company Act of 1940, these funds are analyzed for consolidation under the voting interest model. As a result of the Company's interests, it consolidates the Pzena Mid Cap Value Fund, and Pzena Long/Short Value Fund. These funds will continue to be consolidated to the extent the Company is deemed to control them. At March 31, 2016 , the aggregate of these funds' $7.4 million in net assets was included in the Company's consolidated statement of financial condition.

The operating company is the managing member of Pzena International Value Service, a series of Pzena Investment Management International, LLC. The operating company is considered the primary beneficiary of this entity. At March 31, 2016 , Pzena International Value Service’s $3.1 million in net assets were included in the Company’s consolidated statement of financial condition.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

Deconsolidated Entities

Certain funds that have historically been consolidated in the financial statements are no longer consolidated. The Company had consolidated the Pzena Investment Funds Trust, Pzena Large Cap Value Fund ("Pzena Large Cap Value Fund") in its consolidated financial statements in accordance with the Consolidation Topic of the FASB Accounting Standards Codification (“FASB ASC”). The majority of the trustees are members of the executive committee of the operating company. The Company reconsidered the consolidation conclusion for the Pzena Large Cap Value Fund as a result of ASU 2015-02 and determined that, although the Pzena Large Cap Value Fund continues to be a VIE, the Company is no longer considered the primary beneficiary.

Prior to January 1, 2016, the Company had consolidated the Pzena Emerging Markets Value Fund as the fund previously met the definition of VIE due to its series fund structure, as the shareholders of the fund lacked the ability to make decisions regarding the trustees and key activities of the fund. The Company reconsidered the consolidation conclusion as a result of the new guidance and determined that, as the Pzena Emerging Markets Value Fund is a series and registered mutual fund that complies with the requirements of the Investment Company Act of 1940, it will be analyzed for consolidation under the voting interest model. The Company is not deemed to control the Pzena Emerging Markets Value Fund.

The deconsolidation of these previously consolidated entities had the following impact on the consolidated statement of financial condition as of January 1, 2016:




	As of December 31, 2015		Impact of Deconsolidation			Adjusted as of January 1, 2016
	(in thousands)
Number of entities	11		(2		)	9
Total Assets	$	114,309	$	(10,910	)	$	103,399
Total Liabilities	$	28,847	$	(75	)	$	28,772
Total Equity	$	85,462	$	(10,835	)	$	74,627

Non-Consolidated Variable Interest Entities

VIEs that are not consolidated receive investment management services from the operating company and are generally private investment partnerships sponsored by the operating company. The total net assets of these VIEs was approximately $40.3 million and $390.1 million at March 31, 2016 and December 31, 2015 , respectively.

As of March 31, 2016 and December 31, 2015 , in order to satisfy the Company's obligations under it deferred compensation programs, the operating company had $2.8 million and $1.7 million in investments, respectively, in certain of these firm-sponsored vehicles, for which the Company was not deemed to be primary beneficiary.

Management’s Use of Estimates:

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses for the period. Actual results could differ from those estimates.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

Revenue Recognition:

Revenue, comprised of advisory fee income, is recognized over the period in which advisory services are provided. Advisory fee income includes management fees that are calculated based on percentages of assets under management (“AUM”), generally billed quarterly, either in arrears or advance, depending on the applicable contractual terms. Advisory fee income also includes performance fees that may be earned by the Company depending on the investment return of the AUM. Performance fee arrangements generally entitle the Company to participate, on a fixed-percentage basis, in any returns generated in excess of an agreed-upon benchmark. The Company’s participation percentage in such return differentials is then multiplied by AUM to determine the performance fees earned. In general, returns are calculated on an annualized basis over the contract’s measurement period, which usually extends to three years . Performance fees are generally payable annually. Following the preferred method identified in the Revenue Recognition Topic of the FASB ASC, such performance fee income is recorded at the conclusion of the contractual performance period, when all contingencies are resolved. For the three months ended March 31, 2016 and 2015 , the Company recognized approximately $0.1 million and $0.4 million in performance fee income, respectively.

Cash and Cash Equivalents:

At March 31, 2016 and December 31, 2015 , Cash and Cash Equivalents was $20.5 million and $35.4 million , respectively. The Company considers all money market funds and highly-liquid debt instruments with an original maturity of three months or less at the time of purchase to be cash equivalents. The Company maintains its cash in bank deposits and other accounts whose balances often exceed federally insured limits.

Interest on cash and cash equivalents is recorded as interest income on an accrual basis in the consolidated statements of operations.

Restricted Cash:

At March 31, 2016 and December 31, 2015 , the Company had $3.4 million and $3.6 million , respectively, of compensating balances recorded in Restricted Cash in the consolidated statements of financial condition.

Included in this balance at March 31, 2016 is a $1.0 million letter of credit issued by a third party in lieu of a cash security deposit, as required by the Company’s lease for its corporate headquarters. At December 31, 2015 this balance included $1.4 million in such letters of credit required by the Company's leases for both is current and former headquarters.

Also included in these balances at March 31, 2016 and December 31, 2015 , were amounts of cash collateral for margin accounts established by the Pzena Long/Short Value Fund required to maintain to support securities sold short, not yet purchased of $2.4 million and $2.2 million , respectively.

Due to/from Broker:

Due to/from Broker consists primarily of amounts payable/receivable for unsettled securities transactions held/initiated at the clearing brokers of the Company’s consolidated subsidiaries.

Investments:

Investment Securities, trading

Investments classified as trading securities consist of equity securities held by the Company and its consolidated subsidiaries. Certain of the Company's investments are held to satisfy the Company's obligations under its deferred compensation program. Dividends associated with the Company's investments and the investments of the Company's consolidated subsidiaries are recorded as dividend income on an ex-dividend basis in the consolidated statement of operations.

Securities Sold Short represents securities sold short, not yet purchased by the Pzena Long/Short Value Fund, which is consolidated with the Company's financial statements. Dividend expense associated with these investments is reflected in Other Expense on an ex-dividend basis in the consolidated statements of operations.

All such investments are recorded at fair value, with net realized and unrealized gains and losses reported in earnings. Net realized and unrealized gains and losses are a component of Gains/ (Losses) and Other Investment Income in the consolidated statements of operations.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

Investments in equity method investees

During the three months ended March 31, 2016 , the Company accounted for its investments in certain private investment partnerships and the Pzena Emerging Markets Value Fund, in which the Company has non-controlling interests and exercises significant influence, using the equity method. These investments are included in Investments in the Company's consolidated statements of financial condition. The carrying value of these investment are recorded at the amount of capital reported by the private investment partnership. The capital account reflects any contributions paid to, distributions received from, and equity earnings of, the entities. The earnings of these investments are recorded as equity in the earnings of affiliates and reflected as a component of Gains/ (Losses) and Other Investment Income in the consolidated statements of operations.

Investments in equity method investees are evaluated for impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amounts of the assets exceed their respective fair values, additional impairment tests are performed to measure the amounts of impairment losses, if any. During the three months ended March 31, 2016 and 2015 , no impairment losses were recognized.

Fair Value Measurements:

The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The Fair Value Measurements and Disclosures Topic of the FASB ASC also establishes a framework for measuring fair value and a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation hierarchy contains three levels: (i) valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets (Level 1); (ii) valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets, and other observable inputs directly or indirectly related to the asset or liability being measured (Level 2); and (iii) valuation inputs are unobservable and significant to the fair value measurement (Level 3).

Included in the Company’s consolidated statements of financial condition are investments in equity securities and securities sold short, both of which are exchange-traded securities with quoted prices in active markets. The fair value measurements of the equity securities, securities sold short, have been classified as Level 1. The investments in equity method investees are held at their carrying value.

As of December 31, 2015, the Company consolidated the Pzena Emerging Markets Value Fund which was deconsolidated upon the adoption of ASU 2015-02 as discussed above. As of December 31, 2015, included in the Company's consolidated statements of financial condition are investments in participatory notes (“P-notes”) held by the Pzena Emerging Markets Value Fund. P-notes are generally issued by a bank or broker-dealer (the “counterparty”) and are designed to offer a return linked to a particular underlying equity security, especially in markets where direct investments are not possible. The risks associated with investing in a P-note may include the possible failure of the counterparty to perform its obligations under the terms of the agreement, an inability to liquidate or transfer the notes, and an imperfect correlation between the value of the P-note and the underlying security. P-notes are valued based on the value of the underlying equity security and have been classified as Level 2.

The following table presents these instruments’ fair value at March 31, 2016 :



	Level 1		Level 2		Level 3		Other Assets Not Held at Fair Value		Total
	(in thousands)
Assets:
Equity Securities	$	13,417	$	—	$	—	$	—	$	13,417
Investments in Equity Method Investees	—		—		—		4,885		4,885
Total	$	13,417	$	—	$	—	$	4,885	$	18,302

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)



	Level 1		Level 2		Level 3		Other Liabilities Not Held at Fair Value		Total
	(in thousands)
Liabilities:
Securities Sold Short	$	2,555	$	—	$	—	$	—	$	2,555

The following table presents these instruments’ fair value at December 31, 2015 :



	Level 1		Level 2		Level 3		Other Assets Not Held at Fair Value		Total
	(in thousands)
Assets:
Equity Securities	$	24,835	$	904	$	—	$	—	$	25,739
Investments in Equity Method Investees	—		—		—		1,713		1,713
Total	$	24,835	$	904	$	—	$	1,713	$	27,452



	Level 1		Level 2		Level 3		Other Liabilities Not Held at Fair Value		Total
	(in thousands)
Liabilities:
Securities Sold Short	$	2,231	$	—	$	—	$	—	$	2,231

For the three months ended March 31, 2016 and 2015 , there were no transfers between levels. In addition, the Company did not hold any Level 2 securities during the three months ended March 31, 2016 , nor any Level 3 securities during the three months ended March 31, 2016 and 2015 .

Securities Valuation:

Investments in equity securities and securities sold short for which market quotations are available are valued at the last reported price or closing price on the primary market or exchange on which they trade. If no reported equity sales occurred on the valuation date, equity investments are valued at the bid price. Transactions are recorded on a trade date basis.

The net realized gain or loss on sales of equity securities and securities sold short is determined on a specific identification basis and is included in Gains/ (Losses) and Other Investment Income in the consolidated statements of operations.

Concentrations of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, amounts due from brokers, and advisory fees receivable. The Company maintains its cash and cash equivalents in bank deposits and other accounts whose balances often exceed federally insured limits.

The concentration of credit risk with respect to advisory fees receivable is generally limited due to the short payment terms extended to clients by the Company. On a periodic basis, the Company evaluates its advisory fees receivable and establishes an allowance for doubtful accounts, if necessary, based on a history of past write-offs, collections, and current credit conditions. For the three months ended March 31, 2016 and 2015 , approximately 10.7% and 10.8% of the Company's advisory fees, respectively, were generated from advisory agreements with one client relationship. At March 31, 2016 and December 31, 2015 , no allowance for doubtful accounts was deemed necessary.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

Property and Equipment:

Property and equipment is carried at cost, less accumulated depreciation and amortization. Depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets, which range from three to seven years . Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvements or the remaining lease term.

Business Segments:

The Company views its operations as comprising one operating segment.

Income Taxes:

The Company is a “C” corporation under the Internal Revenue Code, and thus liable for federal, state, and local taxes on the income derived from its economic interest in its operating company. The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes. It has not made a provision for federal or state income taxes because it is the individual responsibility of each of the operating company’s members (including the Company) to separately report their proportionate share of the operating company’s taxable income or loss. The operating company has made a provision for New York City Unincorporated Business Tax (“UBT”) and it's consolidated subsidiary Pzena Investment Management, LTD has made a provision for U.K. income taxes.

Judgment is required in evaluating the Company's uncertain tax positions and determining its provision for income taxes. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when the Company believes that certain positions might be challenged despite its belief that its tax return positions are in accordance with applicable tax laws. The Company adjusts these reserves in light of changing facts and circumstances, such as the closing of a tax audit, new tax legislation or the change of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate. It is also the Company’s policy to recognize accrued interest, and penalties associated with uncertain tax positions in Income Tax Expense on the consolidated statements of operations. For the three months ended March 31, 2016 and 2015 , no such expenses were recognized. As of March 31, 2016 and December 31, 2015 , no such accruals were recorded.

The Company and its consolidated subsidiaries account for all U.S. federal, U.K., state, and local taxation pursuant to the asset and liability method, which requires deferred income tax assets and liabilities to be recorded for temporary differences between the carrying amount and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the temporary differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount more likely than not to be realized. At March 31, 2016 , the Company had a $52.9 million valuation allowance against deferred tax assets recorded as part of the Company’s initial public offering and the subsequent exchanges of Class B units for shares of its Class A common stock. At December 31, 2015 , the Company had a $54.0 million valuation allowance against these deferred tax assets. The income tax expense, or benefit, is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities. The Company records its deferred tax liabilities as a component of other liabilities in the consolidated statements of financial condition.

Excess tax benefits related to stock- and unit-transactions are not recognized until they result in a reduction of cash taxes payable. The benefit of these excess tax benefits will be recorded in equity when they reduce cash taxes payable. The Company will only recognize a tax benefit from stock- and unit-based awards in Additional Paid-In Capital if an incremental tax benefit is realized after all other tax benefits currently available have been utilized. For the three months ended March 31, 2015 the Company had $0.1 million in tax benefits associated with stock- and unit-based awards that it was not able to recognize. For the three months ended March 31, 2016 , the Company had no such benefits.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

Foreign Currency:

The functional currency of the Company is the U.S. Dollar. Assets and liabilities of foreign operations whose functional currency is not the U.S. Dollar are translated at the exchange rate in effect at the applicable reporting date, and the consolidated statements of operations are translated at the average exchange rates in effect during the applicable period. A charge or credit is recorded to other comprehensive income to reflect the translation of these amounts to the extent the non-U.S. currency is designated the functional currency of the subsidiary. Non-functional currency related transaction gains and losses are immediately recorded in the consolidated statements of operations. For the three months ended March 31, 2016 the Company recorded less than $0.1 million of other comprehensive income associated with foreign currency translation adjustments. For the three months ended March 31, 2015 , the Company did not record any other comprehensive income.

Investment securities and other assets and liabilities denominated in foreign currencies are remeasured into U.S. Dollar amounts at the date of valuation. Purchases and sales of investment securities, and income and expense items denominated in foreign currencies, are remeasured into U.S. Dollar amounts on the respective dates of such transactions.

The Company does not isolate the portion of the results of its operations resulting from the impact of fluctuations in foreign exchange rates on its non-U.S. investments. Such fluctuations are included in Gains/ (Losses) and Other Investment Income in the consolidated statements of operations.

Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, foreign withholding taxes, and other receivables and payables recorded on the Company’s books and the U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities resulting from changes in exchange rates.

Recently Issued Accounting Pronouncements Not Yet Adopted:

In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting". This update involves amendments related to several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for the fiscal years and interim periods within those years beginning after December 15, 2016, and requires transition methods specific to each amendment in either a modified retrospective, retrospective, or prospective method. The Company is assessing the impact this standard will have on the consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, " Leases (Topic 842) ". This amended standard was written to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new standard requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosure. Accounting guidance for lessors is largely unchanged. This guidance is effective for the fiscal years and interim periods within those years beginning after December 15, 2018, and requires a modified retrospective approach to adoption. The Company is assessing the impact this standard will have on the consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU No. 2014-09, " Revenue from Contracts with Customers (Topic 606) ." The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. In July 2015, the FASB postponed the effective date of this new guidance from January 1, 2017 to January 1, 2018. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the potential impact on the consolidated statements and related disclosures, as well as the available transition methods.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

Note 3—Compensation and Benefits

Compensation and benefits expense to employees and members is comprised of the following:



	For the Three Months Ended March 31,
	2016		2015
	(in thousands)
Cash Compensation and Other Benefits	$	10,897	$	10,597
Non-Cash Compensation	1,601		1,473
Total Compensation and Benefits Expense	$	12,498	$	12,070

All non-cash compensation awards granted have varying vesting schedules and are issued at prices equal to the assessed fair market value at the time of issuance, as discussed below. Details of non-cash compensation awards granted during the three months ended March 31, 2016 and 2015 are as follows:



	For the Three Months Ended March 31,
	2016			2015
	Amount	Fair Value ¹		Amount	Fair Value ¹
Restricted Class B Units	5,812	$	8.60	23,782	$	9.46
Options to Purchase Shares of Class A Common Stock ²	—	$	—	1,000,000	$	1.07
Deferred Compensation Phantom Delayed Exchange Class B Units ³	149,533	$	5.12	—	$	—
Participating Shares of Restricted Class A Common Stock ⁴	—	$	—	29,868	$	8.37
Restricted Shares of Class A Common Stock ⁵	—	$	—	100,000	$	6.08

¹ Represents the grant date fair value per share or unit.

² Represents contingently vesting options to purchase shares of Class A common stock. These share options vest over a period of seven years contingent on meeting various performance goals.

³ Represents phantom Delayed Exchange Class B units issued under the Bonus Plan. These units vest ratably over four years and become Delayed Exchange Class B units upon vesting which may not be exchanged pursuant the Amended and Restated Operating Agreement until the seventh anniversary of the vesting date and are not entitled to any benefits under the Tax Receivable Agreement.

⁴ Represents restricted shares of Class A common stock that receive nonforfeitable rights to dividends.

⁵ Represents restricted shares of Class A common stock issued under the 2007 Equity Incentive Plan. These shares vest ratably over ten years and are not entitles to receive dividend or dividend equivalents until vested.

Pursuant to the Pzena Investment Management, LLC Amended and Restated 2006 Equity Incentive Plan (“the 2006 Equity Incentive Plan”), the operating company issues Class B units, phantom Class B units and options to purchase Class B units. The Company also issues Delayed Exchange Class B units pursuant to the 2006 Equity Incentive Plan. These Class B units vest immediately upon grant, but may not be exchanged pursuant to the Amended and Restated Operating Agreement of the operating company until at least the seventh anniversary of the date of grant. These units are also not entitled to any benefit under the Tax Receivable Agreement between the Company and members of the operating company. Under the Pzena Investment Management, Inc. 2007 Equity Incentive Plan (“the 2007 Equity Incentive Plan”), the Company issues shares of restricted Class A common stock and contingently vesting options to acquire shares of Class A common stock. No restricted Class B units were forfeited during the three months ended March 31, 2016 . During the three months ended March 31, 2015 , 5,775 restricted Class B units were forfeited in connection with employee departures. During each of the three months ended March 31, 2016 and 2015 , no contingently vesting options vested. During the three months ended March 31, 2016 , 12,695 Delayed Exchange Class B units were issued for approximately $0.1 million in cash to certain employee members. During the three months ended March 31, 2015 , 142,315 Delayed Exchange Class B units issued to one employee during 2014 were canceled and replaced with cash compensation. Additional compensation expense of less than $0.1 million was recognized upon cancellation and replacement of the award. No Class B units were canceled during the three months ended March 31, 2016 .

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

Under the Pzena Investment Management, LLC Amended and Restated Bonus Plan (the “Bonus Plan”), eligible employees whose compensation is in excess of certain thresholds are required to defer a portion of that excess. These deferred amounts may be invested, at the employee’s discretion, in certain investment options designated by the Compensation Committee of the Company's Board of Directors. Amounts deferred in any calendar year reduce that year’s compensation expense and are amortized and vest ratably over a four -year period commencing the following year. The Company also issued to certain of its employees deferred compensation with certain investment options that also vest ratably over a four-year period. As of March 31, 2016 and December 31, 2015 , the liability associated with all deferred compensation investment accounts was $0.9 million and $2.9 million , respectively. During the three months ended March 31, 2016 , approximately $0.1 million in deferred compensation investments were forfeited in connection with employee departures. No deferred compensation was forfeited during the three months ended March 31, 2015 .

Pursuant to the Pzena Investment Management, Inc. Non-Employee Director Deferred Compensation Plan (the “Director Plan”), non-employee directors may elect to have all or part of their compensation otherwise payable in cash, deferred in the form of phantom shares of Class A common stock of the Company issued under the 2007 Equity Incentive Plan. Elections to defer compensation under the Director Plan are made on a year-to-year basis. Distributions under the Director Plan are made in a single distribution of shares of Class A common stock at such time as elected by the participant when the deferral was made. Since inception of the Director Plan in 2009, the Company’s directors have elected to defer 100% of their compensation in the form of phantom shares of Class A common stock. Amounts deferred in any calendar year are amortized over the calendar year and reflected as General and Administrative Expense. As of March 31, 2016 and December 31, 2015 , there were 288,191 and 232,585 phantom shares of Class A common stock outstanding, respectively. For the three months ended March 31, 2016 and 2015 , no distributions were made under the Director Plan.

The Company has issued to certain of its employees delayed-vesting cash awards. For the three months ended March 31, 2016 and 2015 no such awards were granted. During the year ended December 31, 2015 , $0.4 million was paid in conjunction with previously awarded delayed-vesting cash awards with varying vesting schedules.

As of March 31, 2016 and December 31, 2015 , the Company had approximately $29.4 million and $31.0 million , respectively, in unrecorded compensation expense related to unvested awards issued pursuant to its Bonus Plan and certain agreements; Class B units, Delayed Exchange Class B units, contingently vesting options, and phantom Class B units issued under the 2006 Equity Incentive Plan; and restricted Class A common stock and option grants issued under the 2007 Equity Incentive Plan. The Company anticipates that this unrecorded cost will amortize over the respective vesting periods of the awards.

Note 4 – Employee Benefit Plans

The operating company has a Profit Sharing and Savings Plan for the benefit of substantially all employees. The Profit Sharing and Savings Plan is a defined contribution profit sharing plan with a 401(k) deferral component. All full-time employees and certain part-time employees who have met the age and length of service requirements are eligible to participate in the plan. The plan allows participating employees to make elective deferrals of compensation up to the annual limits which are set by law. The plan provides for a discretionary annual contribution by the operating company which is determined by a formula based on the salaries of eligible employees as defined by the plan. For the three months ended March 31, 2016 and 2015 , the expense recognized in connection with this plan was $0.4 million and $0.3 million , respectively.

Note 5—Earnings per Share

Basic earnings per share is computed by dividing the Company’s net income attributable to its common stockholders by the weighted average number of shares outstanding during the reporting period.

Under the two-class method of computing basic earnings per share, basic earnings per share is calculated by dividing net income for basic earnings per share by the weighted average number of common shares outstanding during the period. The two-class method includes an earnings allocation formula that determines earnings per share for each participating security according to dividends declared and undistributed earnings for the period. The Company’s net income for basic earnings per share is reduced by the amount allocated to participating restricted shares of Class A common stock which participate for purposes of calculating earnings per share.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

For the three months ended March 31, 2016 and 2015 , the Company’s basic earnings per share was determined as follows:



	For the Three Months Ended March 31,
	2016		2015
	(in thousands, except share and per share amounts)
Net Income for Basic Earnings per Share Allocated to:
Class A Common Stock	$	1,619	$	1,621
Participating Shares of Restricted Class A Common Stock	3		1
Total Net Income for Basic Earnings per Share	$	1,622	$	1,622
Basic Weighted-Average Shares Outstanding	15,166,746		13,049,086
Add: Participating Shares of Restricted Class A Common Stock ¹	25,765		8,628
Total Basic Weighted-Average Shares Outstanding	15,192,511		13,057,714
Basic Earnings per Share	$	0.11	$	0.12

¹ Certain unvested shares of Class A common stock granted to employees have nonforfeitable rights to dividends and therefore participate fully in the results of the Company from the date they are granted. They are included in the computation of basic earnings per share using the two-class method for participating securities.

Diluted earnings per share adjusts this calculation to reflect the impact of all outstanding membership units of the operating company, phantom Class B units, phantom Delayed Exchange Class B units, phantom Class A common stock, outstanding Class B unit options, options to purchase Class A common stock, and restricted Class A common stock, to the extent they would have a dilutive effect on net income per share for the reporting period. Net income for diluted earnings per share assumes that all outstanding operating company membership units are converted into Company stock at the beginning of the reporting period and the resulting change to the Company's net income associated with its increased interest in the operating company is taxed at the Company’s effective tax rate, exclusive of one-time charges and adjustments associated with both the valuation allowance and the liability to selling and converting shareholders and other one-time charges.

For the three months ended March 31, 2016 and 2015 , the Company’s diluted net income was determined as follows:



	For the Three Months Ended March 31,
	2016		2015
	(in thousands)
Net Income Attributable to Non-Controlling Interests of Pzena Investment Management, LLC	$	7,741	$	10,041
Less: Assumed Corporate Income Taxes	2,853		3,736
Assumed After-Tax Income of Pzena Investment Management, LLC	4,888		6,305
Net Income of Pzena Investment Management, Inc.	1,622		1,622
Diluted Net Income	$	6,510	$	7,927

Under the two-class method of computing diluted earnings per share, diluted earnings per share is calculated by dividing net income for diluted earnings per share by the weighted average number of common shares outstanding during the period, plus the dilutive effect of any potential common shares outstanding during the period using the more dilutive of the treasury method or two-class method. The two-class method includes an earnings allocation formula that determines earnings per share for each participating security according to dividends declared and undistributed earnings for the period. The Company’s net income for diluted earnings per share is reduced by the amount allocated to participating restricted Class B units for purposes of calculating earnings per share. Dividend equivalent distributions paid per share on the operating company’s unvested restricted Class B units are equal to the dividends paid per Company Class A common stock.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

For the three months ended March 31, 2016 and 2015 , the Company’s diluted earnings per share were determined as follows:



	For the Three Months Ended March 31,
	2016		2015
	(in thousands, except share and per share amounts)
Diluted Net Income Allocated to:
Class A Common Stock	$	6,503	$	7,916
Participating Shares of Restricted Class A Common Stock	3		1
Participating Class B Units	4		10
Total Diluted Net Income Attributable to Shareholders	$	6,510	$	7,927

Total Basic Weighted-Average Shares Outstanding	15,192,511		13,057,714
Dilutive Effect of B Units	52,114,313		52,949,723
Dilutive Effect of Options ¹	147,364		686,196
Dilutive Effect of Phantom Class B Units & Phantom Shares of Class A Common Stock	972,192		1,162,207
Dilutive Effect of Restricted Shares of Class A Common Stock ²	29,074		37,550
Dilutive Weighted-Average Shares Outstanding	68,455,454		67,893,390
Add: Participating Class B Units ³	41,057		88,855
Total Dilutive Weighted-Average Shares Outstanding	68,496,511		67,982,245
Diluted Earnings per Share	$	0.10	$	0.12

¹ Represents the dilutive effect of options to purchase operating company Class B units and Company Class A common stock.

² Certain restricted shares of Class A common stock granted to employees are not entitled to dividend or dividend equivalent payments until they are vested and are therefore non-participating securities and are not included in the computation of basic earnings per share. They are included in the computation of diluted earnings per share when the effect is dilutive using the treasury stock method.

³ Unvested Class B Units granted to employees have nonforfeitable rights to dividend equivalent distributions and therefore participate fully in the results of the operating company's operations from the date they are granted. They are included in the computation of diluted earnings per share using the two-class method for participating securities.

Approximately 4.0 million and 0.9 million options to purchase Class B units were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2016 and 2015 , respectively, as either their inclusion would have had an antidilutive effect based on current market prices or because the option had contingent vesting requirements. Approximately 0.7 million options to purchase shares of Class A common stock were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2016 , as their inclusion would have an an antidilutive effect based on current market prices.

Note 6—Shareholders’ Equity

The Company functions as the sole managing member of the operating company. As a result, the Company: (i) consolidates the financial results of the operating company and reflects the membership interest in it that it does not own as a non-controlling interest in its consolidated financial statements; and (ii) recognizes income generated from its economic interest in the operating company’s net income. Class A and Class B units of the operating company have the same economic rights per unit. As of March 31, 2016 , the holders of Class A common stock (through the Company) and the holders of Class B units of the operating company held approximately 22.5% and 77.5% , respectively, of the economic interests in the operations of the business. As of December 31, 2015 , the holders of Class A common stock (through the Company) and the holders of Class B units of the operating company held approximately 22.6% and 77.4% , respectively, of the economic interests in the operations of the business.

Each Class B unit of the operating company is issued with a corresponding share of the Company’s Class B common stock, par value $0.000001 per share. Each share of the Company’s Class B common stock entitles its holder to five votes, until the first time that the number of shares of Class B common stock outstanding constitutes less than 20% of the number of all shares of the Company’s common stock outstanding. From such time and thereafter, each share of the Company’s Class B

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

common stock entitles its holder to one vote. When a Class B unit is exchanged for a share of the Company’s Class A common stock or forfeited, a corresponding share of the Company’s Class B common stock will automatically be redeemed and canceled. Conversely, to the extent that the Company causes the operating company to issue additional Class B units to employees pursuant to its equity incentive plan, these additional holders of Class B units would be entitled to receive a corresponding number of shares of the Company’s Class B common stock (including if the Class B units awarded are subject to vesting).

All holders of the Company’s Class B common stock have entered into a stockholders’ agreement, pursuant to which they agreed to vote all shares of Class B common stock then held by them, with the majority of votes of Class B common stockholders taken in a preliminary vote of the Class B common stockholders.

The outstanding shares of the Company’s Class A common stock represent 100% of the rights of the holders of all classes of the Company’s capital stock to receive distributions, except that holders of Class B common stock will have the right to receive the class’s par value upon the Company’s liquidation, dissolution or winding up.

Pursuant to the operating agreement of the operating company, each vested Class B unit is exchangeable for a share of the Company’s Class A common stock, subject to certain exchange timing and volume limitations. No Class B units were exchanged during the three months ended March 31, 2016 or 2015 .

The Company’s share repurchase program was announced on April 24, 2012. The Board of Directors authorized the Company to repurchase up to an aggregate of $10 million of the Company’s outstanding Class A common stock and the operating company’s Class B units on the open market and in private transactions in accordance with applicable securities laws. On February 11, 2014, the Company announced that its Board of Directors approved an increase of $20 million in the aggregate amount authorized under the program. The timing, number and value of common shares and units repurchased are subject to the Company’s discretion. The Company’s share repurchase program is not subject to an expiration date and may be suspended, discontinued, or modified at any time, for any reason.

During the three months ended March 31, 2016 , the Company purchased and retired 100,518 shares of Class A common stock and 2,207 Class B units under the current repurchase authorization at a weighted average price per share of $7.49 and $8.60 , respectively. During the three months ended March 31, 2015 , the Company purchased and retired 94,447 shares of Class A common stock and 4,388 Class B units under the repurchase authorization at a weighted average price per unit of $8.73 and $9.46 , respectively. The Company records the repurchase of shares and units at cost based on the trade date of the transaction.

No Class B units options were exercised during the three months ended March 31, 2016 . During the three months ended March 31, 2015 , 400,000 Class B unit options were exercised for $1.7 million in cash. These exercises resulted in the issuance of 400,000 Class B units.

Note 7—Non-Controlling Interests

Net Income Attributable to Non-Controlling Interests in the operations of the Company’s operating company and consolidated subsidiaries is comprised of the following:



	For the Three Months Ended March 31,
	2016			2015
	(in thousands)
Non-Controlling Interests of Pzena Investment Management, LLC	$	7,741		$	10,041
Non-Controlling Interests of Consolidated Subsidiaries	(5		)	(60		)
Net Income Attributable to Non-Controlling Interests	$	7,736		$	9,981

Distributions to non-controlling interests represent tax allocations and dividend equivalents paid to the members of the operating company, as well as withdrawals from the Company’s consolidated subsidiaries. Contributions from non-controlling interests represent contributions to the Company's consolidated subsidiaries.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

Note 8—Investments

The following is a summary of Investments:



	As of
	March 31, 2016		December 31, 2015
	(in thousands)
Investment Securities, Trading
Equity Securities	$	13,417	$	25,739
Total Investment Securities, Trading	13,417		25,739
Investments in Equity Method Investees	4,885		1,713
Total	$	18,302	$	27,452

Investment Securities, Trading

Investments, at Fair Value consisted of the following at March 31, 2016 :



	Cost		Unrealized Gain/(Loss)			Fair Value
	(in thousands)
Equity Securities	$	14,153	$	(736	)	$	13,417
Total	$	14,153	$	(736	)	$	13,417

Securities Sold Short, at Fair Value consisted of the following at March 31, 2016 :



	Proceeds		Unrealized (Gain)/ Loss			Fair Value
	(in thousands)
Securities Sold Short	$	2,680	$	(125	)	$	2,555
Total	$	2,680	$	(125	)	$	2,555

Investments, at Fair Value consisted of the following at December 31, 2015 :



	Cost		Unrealized Gain/(Loss)			Fair Value
	(in thousands)
Equity Securities	$	30,029	$	(4,290	)	$	25,739
Total	$	30,029	$	(4,290	)	$	25,739

Securities Sold Short, at Fair Value consisted of the following at December 31, 2015 :



	Proceeds		Unrealized (Gain)/ Loss			Fair Value
	(in thousands)
Securities Sold Short	$	2,391	$	(160	)	$	2,231
Total	$	2,391	$	(160	)	$	2,231

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

Investments in Equity Method Investees

The operating company sponsors and provides investment management services to certain private investment partnerships and Pzena Mutual funds through which it offers its investment strategies. The Company has made investments in certain of these private investment partnerships and mutual funds to satisfy its obligations under the Company's deferred compensation program and provide the initial cash investment in our mutual funds. The Company holds a non-controlling interest and exercises significant influence in these entities, and accounts for its investments as equity method investments which are included in Investments on the consolidated statement of financial condition. As of March 31, 2016 , the Company's investments range between 3% and 17% of the capital of these entities and have an aggregate carrying value of $4.9 million .

Note 9—Property and Equipment

Property and Equipment, Net of Accumulated Depreciation is comprised of the following:



	As of
	March 31, 2016			December 31, 2015
	(in thousands)
Leasehold Improvements	$	6,826		$	6,826
Computer Hardware	745			689
Furniture and Fixtures	1,190			1,190
Computer Software	232			220
Office Equipment	190			180
Total	9,183			9,105
Less: Accumulated Depreciation and Amortization	(1,470		)	(1,202		)
Total	$	7,713		$	7,903

In April of 2015, the Company moved to its new corporate headquarters, as discussed further in Note 11—Commitments and Contingencies, and began depreciating approximately $6.8 million in leasehold improvements and $1.2 million in furniture and fixtures related to its new office space.

Depreciation is included in general and administrative expense and totaled approximately $0.3 million and $0.1 million for the three months ended March 31, 2016 and 2015 , respectively.

Note 10—Related Party Transactions

For each of the three months ended March 31, 2016 and 2015 , the Company earned $0.1 million and $0.8 million , respectively, in investment advisory fees from unconsolidated VIEs that receive investment management services from the Company.

At both March 31, 2016 and December 31, 2015 , the Company had approximately $0.1 million remaining of advances to an international investment company for organization and start-up costs, which are included in receivable from related parties on the consolidated statements of financial condition. The Company is the sponsor and investment manager of this entity.

In 2015, the Company began offering loans to employees, excluding executive officers, for the purpose of financing tax obligations associated with compensatory stock and unit vesting. Loans are full recourse, are generally written for a seven -year period, at a market rate of interest, payable in annual installments, and collateralized by shares and units held by the employee. As of March 31, 2016 and December 31, 2015 , the Company had approximately $0.9 million and $0.8 million of such loans outstanding, respectively.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

At March 31, 2016 and December 31, 2015 , Receivable from Related Parties included approximately $0.1 million of a forgivable loan associated with an initial employment agreement. At March 31, 2016 , the remainder of the loan becomes forgivable in installments over a period of approximately 7 months .

The operating company, as investment adviser for certain Pzena branded SEC-registered mutual funds, private placement funds, and non-U.S. funds, has contractually agreed to waive a portion or all of its management fees and pay fund expenses to ensure that the annual operating expenses of the funds stay below certain established total expense ratio thresholds. For each of the three months ended March 31, 2016 and 2015 , the Company recognized $0.2 million of such expenses.

The operating company manages the personal funds of certain of the Company’s employees, including the CEO, its two Presidents, and its Executive Vice President. The operating company also manages accounts beneficially owned by a private fund in which certain of the Company’s executive officers invest. Investments by employees in individual accounts are permitted only at the discretion of the executive committee of the operating company, but are generally not subject to the same minimum investment levels that are required of outside investors. The operating company also manages the personal funds of some of its employees’ family members. Pursuant to the respective investment management agreements, the operating company waives or reduces its regular advisory fees for these accounts and personal funds. In addition, the operating company pays custody and administrative fees for certain of these accounts and personal funds in order to incubate products or preserve performance history. The aggregate value of the fees that the Company waived related to the Company’s executive officers, other employees, and family members, was approximately $0.2 million for each of the three months ended March 31, 2016 and 2015 , respectively. The aggregate value of the custody and administrative fees paid related to the Company’s executive offers, other employees, and family members was less than $0.1 million for each of the three months ended March 31, 2016 and 2015 .

Note 11—Commitments and Contingencies

In the normal course of business, the Company enters into agreements that include indemnities in favor of third parties, such as engagement letters with advisers and consultants. In certain cases, the Company may have recourse against third parties with respect to these indemnities. The Company maintains insurance policies that may provide coverage against certain claims under these indemnities. The Company has had no claims or payments pursuant to these agreements, and it believes the likelihood of a claim being made is remote. Utilizing the methodology in the Guarantees Topic of the FASB ASC, the Company’s estimate of the value of such guarantees is de minimis, therefore, no accrual has been made in the consolidated financial statements.

In April of 2015, the Company moved to its new corporate headquarters. The new office space is leased under a non-cancelable operating lease agreement that became effective in October 2014. The Company recognizes minimum lease expense for its headquarters on a straight-line basis over the lease term, which expires on December 31, 2025. The Company entered into a five year sublease agreement commencing on May 1, 2015 that is cancelable by either the Company or sublessee given appropriate notice after the third anniversary of the commencement of the sublease agreement. The sublease agreement is for certain office space associated with the Company's operating lease agreement in its corporate headquarters. The sublease income associated with this agreement will be recognized on a straight-line basis over the sublease term will decrease lease expense.

The Company's former headquarters were leased under a non-cancelable operating lease agreement that expired on October 31, 2015. During the three months ended March 31, 2015 , the Company recognized $0.3 million in non-recurring lease expenses associated with its former corporate headquarters.

Lease expenses, including the expenses recognized during the three months ended March 31, 2015 which did not recur during the three months ended March 31, 2016 , were $0.4 million and $0.9 million for the three months ended March 31, 2016 and 2015 , respectively, and are included in general and administrative expense. Lease expenses for the three months ended March 31, 2016 were net of $0.1 million of sublease income. No such income was recognized during the three months ended March 31, 2015 .

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

Note 12—Income Taxes

The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes. Neither it nor the Company’s other consolidated subsidiaries have made a provision for federal or state income taxes because it is the individual responsibility of each of these entities’ members (including the Company) to separately report their proportionate share of the respective entity’s taxable income or loss. The operating company has made a provision for New York City UBT and its U.K. consolidated subsidiary has made a provision for U.K. taxes. The Company, as a “C” corporation under the Internal Revenue Code, is liable for federal, state and local taxes on the income derived from its economic interest in its operating company, which is net of UBT and U.K taxes. Correspondingly, in its consolidated financial statements, the Company reports both the operating company’s provision for UBT, U.K., as well as its provision for federal, state and local corporate taxes.

The components of the income tax expense are as follows:



	For the Three Months Ended March 31,
	2016			2015
	(in thousands)
Current Provision:
Unincorporated and Other Business Taxes	$	443		$	462
Local Corporate Tax	—			—
State Corporate Tax	—			—
Federal Corporate Tax	—			—
Total Current Provision	$	443		$	462
Deferred Provision:
Unincorporated and Other Business Taxes	$	22		$	62
Local Corporate Tax	53			72
State Corporate Tax	40			46
Federal Corporate Tax	722			812
Total Deferred Provision	$	837		$	992
Change in Valuation Allowance	(1,060		)	(366		)
Total Income Tax Expense	$	220		$	1,088

The Income Taxes Topic of the FASB ASC establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax return positions in financial statements.

As of March 31, 2016 and December 31, 2015 , the Company had available for U.S. federal income tax reporting purposes, a net operating loss carryforward of $10.3 million and $10.2 million , respectively, which expires in varying amounts during the tax years 2028 through 2035.

As of March 31, 2016 and December 31, 2015 , approximately $2.8 million , respectively, of deductions for excess stock- and unit- based transactions were included in net operating losses. The $1.0 million of tax benefit associated with these deductions will be credited to Additional Paid-In Capital when such deductions reduce taxes payable. Although these net operating losses are included in the total carryforward amount, they are not reflected in the table of deferred tax assets as the excess tax benefits are not yet realized.

The Company and the operating company are generally no longer subject to U.S. Federal or state and local income tax examinations by tax authorities for any year prior to 2012. All tax years subsequent to, and including, 2012 are considered open and subject to examination by tax authorities. During 2013, the Company extended the examination statue of limitations for the 2009 to 2011 tax years in association with the amendment of prior year tax returns to change the methodology for state and local receipts.

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

The acquisition of operating company Class B units, noted below, has allowed the Company to make an election under Section 754 of the Internal Revenue Code (“Section 754”) to step up its tax basis in the net assets acquired. This step up is deductible for tax purposes over a 15 -year period. Based on the net proceeds of the initial public offering and tax basis of the operating company, this election gave rise to an initial deferred tax asset of approximately $68.7 million .

Pursuant to a tax receivable agreement between the members of the operating company and the Company, 85% of the cash savings generated by this election will be distributed to the selling and converting shareholders upon the realization of this benefit.

If the Company exercises its right to terminate the tax receivable agreement early, the Company will be obligated to make an early termination payment to the selling and converting shareholders, based upon the net present value (based upon certain assumptions and deemed events set forth in the tax receivable agreement) of all payments that would be required to be paid by the Company under the tax receivable agreement. If certain change of control events were to occur, the Company would be obligated to make an early termination payment.

During the three months ended March 31, 2016 and 2015 , the Company’s valuation allowance was reduced by approximately $1.1 million and $0.4 million , respectively, due to revised estimates of future taxable income. These changes are reflected as a net adjustment to the Company's Section 754 deferred tax asset, valuation allowance, and other deferred tax assets. To reflect these changes in the estimated realization of the asset and its liability for future payments, the Company increased its liability to selling and converting shareholders by $0.9 million and $0.2 million for the three months ended March 31, 2016 and 2015 , respectively. The effects of these changes to the deferred tax asset and liability to selling and converting shareholders were recorded as a component of the income tax expense and other expense, respectively, on the consolidated statements of operations.

As of March 31, 2016 and December 31, 2015 , the net values of all deferred tax assets were approximately $15.2 million and $15.0 million , respectively.

The change in the Company’s deferred tax asset, net of valuation allowance, for the three months ended March 31, 2016 is summarized as follows:



	Section 754			Other		Valuation Allowance			Total
	(in thousands)
Balance at December 31, 2015	$	64,877		$	4,086	$	(53,968	)	$	14,995
Deferred Tax (Expense)/Benefit	(1,111		)	273		—			(838		)
Change in Valuation Allowance	—			—		1,060			1,060
Balance at March 31, 2016	$	63,766		$	4,359	$	(52,908	)	$	15,217

The change in the Company’s deferred tax liability, which is included in other liabilities on the Company’s consolidated statements of financial condition, for the three months ended March 31, 2016 , is summarized as follows:



	Total
	(in thousands)
Balance at December 31, 2015	$	(4	)
Deferred Tax (Expense)/Benefit	1
Balance at March 31, 2016	$	(3	)

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Pzena Investment Management, Inc.

Notes to Unaudited Consolidated Financial Statements (Continued)

The change in the Company’s deferred tax asset, net of valuation allowance, for the three months ended March 31, 2015 is summarized as follows:



	Section 754			Other			Valuation Allowance			Total
	(in thousands)
Balance at December 31, 2014	$	54,783		$	4,074		$	(44,239	)	$	14,618
Deferred Tax (Expense)/Benefit	(923		)	(80		)	—			(1,003		)
Change in Valuation Allowance	—			—			366			366
Balance at March 31, 2015	$	53,860		$	3,994		$	(43,873	)	$	13,981

The change in the Company’s deferred tax liability for the three months ended March 31, 2015 is summarized as follows:



	Total
	(in thousands)

Balance at December 31, 2014	$	(18	)
Deferred Tax (Expense)/Benefit	11
Balance at March 31, 2015	$	(7	)

Note 13—Subsequent Events

On April 19, 2016, the Company declared a quarterly dividend of $0.03 per share of its Class A common stock that will be paid on May 19, 2016 to holders of record on April 29, 2016.

No other subsequent events necessitated disclosures and/or adjustments.

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

Overview

We are an investment management firm that utilizes a classic value investment approach across all of our investment strategies. We currently manage assets in a variety of value-oriented investment strategies across a wide range of market capitalizations in both U.S. and non-U.S. capital markets. At March 31, 2016 , our assets under management, or AUM, was $26.1 billion . We manage separate accounts on behalf of institutions, act as sub-investment adviser for a variety of SEC-registered mutual funds and non-U.S. funds, and act as investment adviser for the Pzena Mutual Funds, private placement funds and non-U.S. funds.

We function as the sole managing member of our operating company, Pzena Investment Management, LLC (the “operating company”). As a result, we: (i) consolidate the financial results of our operating company with our own, and reflect the membership interest in it that we do not own as a non-controlling interest in our consolidated financial statements; and (ii) recognize income generated from our economic interest in our operating company’s net income. As of March 31, 2016 , the holders of Class A common stock (through the Company) and the holders of Class B units of our operating company held approximately 22.5% and 77.5% , respectively, of the economic interests in the operations of our business.

The Company also serves as the general partner of Pzena Investment Management, LP, a partnership formed with the object of aggregating employee ownership in one entity.

Certain of our named executive officers and employees have interests in Pzena Investment Management, LP and certain estate planning vehicles through which they indirectly own Class B units of our operating company. As of March 31, 2016 , through direct and indirect interests, our five named executive officers, 32 other employee members, and certain other members of our operating company, including one of our directors, his related entities, and certain former employees, collectively held 55.5%, 4.7%, and 17.3% of the economic interests in our operating company, respectively.

Non-GAAP Net Income

Our results for the three months ended March 31, 2016 and 2015 include recurring adjustments related to our deferred tax asset generated by the Company's initial public offering and subsequent unit conversions, as well as our tax receivable agreement and the associated liability to our selling and converting shareholders, in addition to adjustments related to certain non-recurring charges recognized in operating expenses during the three months ended March 31, 2016 . We believe that these accounting adjustments add a measure of non-operational complexity which partially obscures the underlying performance of our business. Therefore, in evaluating our financial condition and results of operations, we also review certain non-GAAP measures of earnings, which exclude these items. Excluding these adjustments, non-GAAP diluted net income and non-GAAP diluted earnings per share were $6.3 million and $0.09 , respectively, for the three months ended March 31, 2016 , and $8.1 million and $0.12 , respectively, for the three months ended March 31, 2015 . GAAP and non-GAAP net income for diluted earnings per share generally assumes all operating company membership units are converted into Company stock at the beginning of the reporting period, and the resulting change to our net income associated with our increased interest in the operating company is taxed at our historical effective tax rate, exclusive of the adjustments related to our tax receivable agreement and the associated liability to selling and converting shareholders, the adjustments related to the non-recurring charges recognized in operating expenses, and other adjustments. Our effective tax rate, exclusive of these adjustments, was 36.9% for the three months ended March 31, 2016 , respectively, and 37.2% for the three months ended March 31, 2015 . See “Operating Results - Income Tax Expense” below.

We use these non-GAAP measures to assess the strength of the underlying operations of the business. We believe that these adjustments, and the non-GAAP measures derived from them, provide information to better analyze our operations between periods and over time. We also use non-GAAP net income as one factor in determining the amount of dividends we pay. See “Dividend Policy” below. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

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A reconciliation of the non-GAAP measures to the most comparable GAAP measures is included below:



	For the Three Months Ended March 31,
	2016			2015
	(in thousands, except share and per share data)
GAAP Net Income	$	1,622		$	1,622
Net Effect of Tax Receivable Agreement	(183		)	(52		)
Net Effect of Non-Recurring Lease Expenses	—			36
Non-GAAP Net Income	$	1,439		$	1,606

GAAP Net Income Attributable to Non-Controlling Interest of Pzena Investment Management, LLC	$	7,741		$	10,041
Effect of Non-Recurring Lease Expenses	—			278
Non-GAAP Net Income Attributable to Non-Controlling Interest of Pzena Investment Management, LLC	7,741			10,319
Less: Assumed Corporate Income Taxes	2,853			3,840
Assumed After-Tax Income of Pzena Investment Management, LLC	4,888			6,479
Non-GAAP Net Income of Pzena Investment Management, Inc.	1,439			1,606
Non-GAAP Diluted Net Income	$	6,327		$	8,085
Non-GAAP Diluted Earnings Per Share Attributable to Pzena Investment Management, Inc. Common Stockholders:
Non-GAAP Net Income for Diluted Earnings per Share	$	6,327		$	8,085
Non-GAAP Diluted Earnings Per Share	$	0.09		$	0.12
Non-GAAP Diluted Weighted-Average Shares Outstanding	68,496,511			67,982,245

Revenue

We generate revenue primarily from management fees and performance fees, which we collectively refer to as our advisory fees, by managing assets on behalf of institutional accounts and for retail clients, which are generally open-end mutual funds catering primarily to retail investors. Our advisory fee income is recognized over the period in which investment management services are provided. Following the preferred method identified in the Revenue Recognition Topic of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), income from performance fees is recorded at the conclusion of the contractual performance period, when all contingencies are resolved.

Our advisory fees are primarily driven by the level of our AUM. Our AUM increases or decreases with the net inflows or outflows of funds into our various investment strategies and with the investment performance thereof. In order to increase our AUM and expand our business, we must develop and market investment strategies that suit the investment needs of our target clients, and provide attractive returns over the long term. The value and composition of our AUM, and our ability to continue to attract clients depends on a variety of factors as described in "Item 1 — Risk Factors — Risks Related to Our Business — Our primary source of revenue is derived from management fees, which are directly tied to the levels of our assets under management. Fluctuations in AUM therefore will directly impact our revenue." of our Annual Report on Form 10-K for the year ended December 31, 2015 .

For our institutional accounts, we are paid fees according to a schedule, which varies by investment strategy. The substantial majority of these accounts pay us management fees pursuant to a schedule by which the rate we earn on the AUM declines as the amount of AUM increases.

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Pursuant to our sub-investment advisory agreements with our retail clients and advisory agreements with Pzena branded funds, we are generally paid a management fee according to a schedule in which the rate we earn on the AUM declines as the amount of AUM increases. Certain of these funds pay us fixed-rate management fees. Due to the substantially larger account size of certain of these accounts, the average advisory fees we earn on them, as a percentage of AUM, are lower than the advisory fees we earn on our institutional accounts.

Advisory fees we earn on institutional accounts are generally based on the value of AUM at a specific date on a quarterly basis. Certain of our institutional accounts, and all of our retail accounts, are calculated based on the average of the monthly or daily market value. Advisory fees are also generally adjusted for any cash flows into or out of a portfolio, where the cash flow represents greater than 10% of the value of the portfolio. While a specific group of accounts may use the same fee rate, the calculation methodology may differ as described above.

Certain of our clients pay us performance fees according to the performance of their accounts relative to certain agreed-upon benchmarks, which results in a lower base fee, but allows for us to earn higher fees if the relevant investment strategy outperforms the agreed-upon benchmark. Some performance-based fee arrangements include high-water mark provisions, which generally provide that if a client account underperforms relative to its performance target, it must gain back such underperformance before we can collect future performance-based fees. Other performance-based fee arrangements require a reduction in the base fee if the relevant investment strategy underperforms the agreed-upon benchmark.

Our advisory fees may fluctuate based on a number of factors, including the following:


•	changes in AUM due to appreciation or depreciation of our investment portfolios, and the levels of the contribution and withdrawal of assets by new and existing clients;


•	distribution of AUM among our investment strategies, which have differing fee schedules;


•	distribution of AUM between institutional accounts and retail accounts, for which we generally earn lower overall advisory fees; and


•	the level of our performance with respect to accounts on which we are paid performance fees.

Expenses

Our expenses consist primarily of Compensation and Benefits Expense, as well as General and Administrative Expense. Our largest expense is Compensation and Benefits, which includes the salaries, bonuses, equity-based compensation, and related benefits and payroll costs attributable to our employee members and employees. Compensation and benefits packages are benchmarked against relevant industry and geographic peer groups in order to attract and retain qualified personnel. General and Administrative Expense includes lease expenses, professional and outside services fees, depreciation, the costs associated with operating and maintaining our research, trading and portfolio accounting systems, the costs associated with being a public company, and other expenses. Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the overall size and scale of our business operations.

Our expenses may fluctuate due to a number of factors, including the following:


•	variations in the level of total compensation expense due to, among other things, bonuses, awards of equity to our employees and employee members of our operating company, changes in our employee count and mix, and competitive factors; and


•	general and administrative expenses, such as rent, professional service fees and data-related costs, incurred, as necessary, to run our business.

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Other Income/ (Expense)

Other Income/ (Expense) is derived primarily from investment income or loss arising from our consolidated entities, income or loss generated by our investments in third-party mutual funds or other investments, and interest income generated on our cash balances. Other Income/ (Expense) is also affected by changes in our estimates of the liability due to our selling and converting shareholders associated with payments owed to them under the tax receivable agreement, which was executed in connection with our reorganization and initial public offering on October 30, 2007. As discussed further below under “Tax Receivable Agreement,” this liability represents 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that we realize as a result of the amortization of the increases in tax basis generated from our acquisitions of our operating company’s units from our selling and converting shareholders. We expect the interest and investment components of Other Income/ (Expense), in the aggregate, to fluctuate based on market conditions and the performance of our consolidated entities and other investments.

Non-Controlling Interests

Our operating company consolidates the results of operations of the private investment partnerships and Pzena-branded mutual funds over which we exercise a controlling influence. We are the sole managing member of our operating company and control its business and affairs and, therefore, consolidate its financial results with ours. In light of our employees’ and outside investors’ direct and indirect interests in our operating company, we have reflected their membership interests as non-controlling interests in our consolidated financial statements. As a result, our income is primarily generated by our economic interest in our operating company’s net income. As of March 31, 2016 , the holders of Class A common stock (through the Company) and the holders of Class B units of the operating company held approximately 22.5% and 77.5% , respectively, of the economic interests in the operations of the business.

Operating Results

Assets Under Management and Flows

As of March 31, 2016 , our AUM of approximately $26.1 billion was invested in a variety of value-oriented investment strategies, representing distinct capitalization segments of U.S. and non-U.S. equity markets. The assets under management and performance of our largest investment strategies as of March 31, 2016 are further described below. We follow the same investment process for each of these strategies. Our investment strategies are distinguished by the market capitalization ranges from which we select securities for their portfolios, which we refer to as each strategy’s investment universe, as well as the regions in which we invest and the degree to which we concentrate on a limited number of holdings. While our investment process includes ongoing review of companies in the investment universes described below, our actual investments may include companies outside of the relevant market capitalization range at the time of our investment. In addition, the number of holdings typically found in the portfolios of each of our investment strategies may vary, as described below.

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The following tables describe the allocation of our AUM among our investment strategies and the domicile of our accounts, as of March 31, 2016 and 2015 :



	AUM at March 31,
Strategy ¹	2016		2015
	(in billions)
U.S. Strategies
Large Cap Value	$	9.5	$	11.1
Mid Cap Value	2.1		1.9
Value	1.8		1.8
Small Cap Value	1.2		1.2
Other U.S. Strategies	0.1		—
Total U.S. Value Strategies	14.7		16.0

Global and Non-U.S. Strategies
International (ex-US) Value	4.1		3.6
Global Value	3.7		5.7
Emerging Markets Value	2.1		1.7
European Value	1.3		0.8
Other Non-U.S. Strategies	0.2		0.1
Total Global and Non-U.S. Value Strategies	11.4		11.9
Total	$	26.1	$	27.9

^{1 Inclusive of our Expanded Value, Focused Value and variations thereof.}



	AUM at March 31,
Account Domicile	2016		2015
	(in billions)
U.S.	$	19.1	$	19.8
Non-U.S.	7.0		8.1
Total	$	26.1	$	27.9

The following table indicates the annualized returns, gross and net (which represents annualized returns prior to, and after, payment of advisory fees, respectively), of our largest investment strategies from their inception to March 31, 2016 , and in the five-year, three-year, and one-year periods ended March 31, 2016 , as well as the performance of the market index which is most commonly used by our clients to compare the performance of the relevant investment strategy:



	Period Ended March 31, 2016 ¹
Investment Strategy (Inception Date)	Since Inception		5 Years		3 Years		1 Year
Large Cap Expanded Value (July 2012)
Annualized Gross Returns	13.7	%	N/A		9.8	%	(4.4	)%
Annualized Net Returns	13.5	%	N/A		9.6	%	(4.6	)%
Russell 1000 ^® Value Index	13.1	%	N/A		9.4	%	(1.5	)%
Large Cap Focused Value (October 2000)
Annualized Gross Returns	6.3	%	8.8	%	9.0	%	(5.2	)%
Annualized Net Returns	5.8	%	8.4	%	8.5	%	(5.6	)%
Russell 1000 ^® Value Index	6.0	%	10.2	%	9.4	%	(1.5	)%
Global Focused Value (January 2004)
Annualized Gross Returns	4.3	%	5.2	%	6.1	%	(8.8	)%

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Annualized Net Returns	3.6	%	4.6	%	5.4	%	(9.4	)%
MSCI® All Country World Index—Net/U.S.$ ²	6.0	%	5.2	%	5.5	%	(4.3	)%
International (ex-U.S) Expanded Value (November 2008)
Annualized Gross Returns	10.2	%	3.5	%	3.9	%	(9.1	)%
Annualized Net Returns	9.9	%	3.2	%	3.5	%	(9.4	)%
MSCI® EAFE Index—Net/U.S.$ ²	7.0	%	2.3	%	2.2	%	(8.3	)%
Focused Value (January 1996)
Annualized Gross Returns	10.3	%	9.9	%	9.5	%	(5.6	)%
Annualized Net Returns	9.5	%	9.2	%	8.8	%	(6.2	)%
Russell 1000 ^® Value Index	8.5	%	10.2	%	9.4	%	(1.5	)%
Emerging Markets Focused Value (January 2008)
Annualized Gross Returns	(0.1	)%	(2.3	)%	(3.8	)%	(7.4	)%
Annualized Net Returns	(0.9	)%	(3.0	)%	(4.5	)%	(8.1	)%
MSCI® Emerging Markets Index—Net/U.S.$ ²	(2.4	)%	(4.1	)%	(4.5	)%	(12.0	)%
Global Expanded Value (January 2010)
Annualized Gross Returns	7.3	%	5.9	%	6.8	%	(6.2	)%
Annualized Net Returns	6.9	%	5.6	%	6.4	%	(6.6	)%
MSCI® World Index—Net/U.S.$ ²	7.9	%	6.5	%	6.8	%	(3.5	)%
Mid Cap Expanded Value (April 2014)
Annualized Gross Returns	3.3	%	N/A		N/A		(1.8	)%
Annualized Net Returns	3.1	%	N/A		N/A		(2.0	)%
Russell Mid Cap® Value Index	3.9	%	N/A		N/A		(3.4	)%
Small Cap Focused Value (January 1996)
Annualized Gross Returns	13.7	%	11.3	%	11.9	%	0.5	%
Annualized Net Returns	12.5	%	10.1	%	10.7	%	(0.6	)%
Russell 2000 ^® Value Index	9.2	%	6.7	%	5.7	%	(7.7	)%
European Focused Value (August 2008)
Annualized Gross Returns	3.8	%	3.3	%	3.4	%	(9.9	)%
Annualized Net Returns	3.4	%	2.9	%	3.0	%	(10.2	)%
MSCI® Europe Index—Net/U.S.$ ²	0.6	%	2.1	%	2.7	%	(8.4	)%
International (ex-U.S) Focused Value (January 2004)
Annualized Gross Returns	5.4	%	3.6	%	3.7	%	(9.2	)%
Annualized Net Returns	4.5	%	2.9	%	3.1	%	(9.7	)%
MSCI® All Country World ex-U.S. Index—Net/U.S.$ ²	5.3	%	0.3	%	0.3	%	(9.2	)%
Mid Cap Focused Value (September 1998)
Annualized Gross Returns	12.6	%	12.7	%	10.8	%	(2.9	)%
Annualized Net Returns	11.8	%	11.9	%	10.1	%	(3.5	)%
Russell Mid Cap ^® Value Index	10.2	%	10.5	%	9.9	%	(3.4	)%

¹ The historical returns of these investment strategies are not necessarily indicative of their future performance, or the future performance of any of our other current or future investment strategies.

² Net of applicable withholding taxes and presented in U.S. Dollars.

Large Cap Expanded Value . This strategy reflects a portfolio composed of approximately 50 to 80 stocks drawn from a universe of 500 of the largest U.S. listed companies, based on market capitalization. This strategy was launched in July 2012. At March 31, 2016 , the Large Cap Expanded Value strategy generated a one-year annualized gross return of (4.4)% , underperforming its benchmark. The underperformance was driven primarily by our stock selection in the financial services sector and our lack of exposure to the utilities sector.

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Large Cap Focused Value . This strategy reflects a portfolio composed of approximately 30 to 40 stocks drawn from a universe of 500 of the largest U.S. listed companies, based on market capitalization. This strategy was launched in October 2000. At March 31, 2016 , the Large Cap Focused Value strategy generated a one-year annualized gross return of (5.2)% , underperforming its benchmark. The underperformance was driven primarily by our stock selection in the financial services sector and our lack of exposure to the utilities sector.

Global Focused Value . This strategy reflects a portfolio composed of approximately 40-60 stocks drawn from a universe of 2,000 of the largest companies across the world, based on market capitalization. This strategy was launched in January 2004. At March 31, 2016 , the Global Focused Value strategy generated a one-year annualized gross return of (8.8)% , underperforming its benchmark. This main contributors to this underperformance include holdings across a range of industries, specifically certain positions in the consumer discretionary, consumer staples, energy and financial sectors, partially offset by our stock selection in the health care sector.

International (ex-U.S.) Expanded Value . This strategy reflects a portfolio composed of approximately 60-80 stocks drawn from a universe of 1,500 of the largest companies across the world excluding the United States, based on market capitalization. This strategy was launched in November 2008. At March 31, 2016 , the International (ex-U.S.) Expanded Value strategy generated a one-year annualized gross return of (9.1)% , underperforming its benchmark. This underperformance was primarily driven by our stock selection in the information technology sector, along with our overweight position in the energy sector.

Focused Value . This strategy reflects a portfolio composed of a portfolio of approximately 30 to 40 stocks drawn from a universe of 1,000 of the largest U.S. listed companies, based on market capitalization. This strategy was launched in January 1996. At March 31, 2016 , the Focused Value strategy generated a one-year annualized gross return of (5.6)% , underperforming its benchmark. The underperformance was driven primarily by our stock selection and overweight position in the financial services sector, along with our lack of exposure to the utilities sector.

Emerging Markets Focused Value. This strategy reflects a portfolio composed of approximately 40 to 80 stocks drawn from a universe of 1,500 of the largest emerging market companies, based on market capitalization. This strategy was launched in January 2008. At March 31, 2016 , the Emerging Markets Focused Value strategy generated a one-year annualized gross return of (7.4)% , outperforming its benchmark. The main contributors to this outperformance include our stock selection in the financial services and information technology sectors, and certain Chinese and Korean stocks. This relative outperformance was partially offset by our stock selection in the industrials and materials sectors.

Global Expanded Value. This strategy reflects a portfolio composed of approximately 60-95 stocks drawn from a universe of 2,000 of the largest companies across the world, based on market capitalization. This strategy was launched in January 2010. At March 31, 2016 , the Global Expanded Value strategy generated a one-year annualized gross return of (6.2)% , underperforming its benchmark. This underperformance was primarily driven by our stock selection in the consumer discretionary sector and certain positions in the financial services sector, partially offset by the relative outperformance of certain stocks in the health care sector.

Mid Cap Expanded Value . This strategy reflects a portfolio composed of approximately 50 to 80 stocks drawn from a

universe of U.S. listed companies ranked from the 201 st to 1,200 th largest, based on market capitalization. This strategy was

launched in April 2014. At March 31, 2016 , the Mid Cap Expanded Value strategy generated a since inception gross return

of (1.8)% , outperforming its benchmark. This relative performance was driven by the outperformance of certain positions in the producer durables sector, partially offset by our lack of exposure to the utilities sector.

Small Cap Focused Value . This strategy reflects a portfolio composed of approximately 40 to 50 stocks drawn from a universe of U.S. listed companies ranked from the 1,001 st to 3,000 th largest, based on market capitalization. This strategy was launched in January 1996. At March 31, 2016 , the Small Cap Focused Value strategy generated a one-year annualized gross return of 0.5% , outperforming its benchmark. The main contributors to this outperformance include certain positions in the materials and processing, health care, and financial services sectors, and a lack of exposure to the energy sector. This relative outperformance was partially offset by our lack of exposure to the utilities sector.

European Focused Value. This strategy reflects a portfolio composed of approximately 40-50 stocks drawn from a universe of 750 of the largest European companies, based on market capitalization. This strategy was launched in August 2008. At March 31, 2016 , the European Focused Value strategy generated a one-year annualized gross return of (9.9)% , underperforming its benchmark. This underperformance was driven primarily by our lack of exposure to the energy and consumer staples sectors, partially offset by certain stocks in the financial services sector.

International (ex-U.S.) Focused Value . This strategy reflects a portfolio composed of approximately 30-50 stocks drawn

from a universe of 1,500 of the largest companies across the world excluding the United States, based on market capitalization.

This strategy was launched in January 2004. At March 31, 2016 , the International (ex-U.S.) Expanded Value strategy

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generated a one-year annualized gross return of (9.2)% , relatively flat compared to its benchmark. This relative performance was driven by our stock selection in the information technology sector and overweight position in the energy sector, offset by certain positions in the financial services and telecommunications sectors.

Mid Cap Focused Value. This strategy reflects a portfolio composed of approximately 30 to 40 stocks drawn from a universe of U.S. listed companies ranked from the 201th to 1,200th largest, based on market capitalization. This strategy was launched in September 1998. At March 31, 2016 , the Mid Cap Focused Value strategy generated a one-year annualized gross return of (2.9)% , outperforming its benchmark. This relative performance was driven by the outperformance of our position in the producer durables sector and overweight position in the energy sector, partially offset by our lack of exposure to the utilities sector.

Our earnings and cash flows are heavily dependent upon prevailing financial market conditions. Significant increases or decreases in the various securities markets, particularly the equities markets, can have a material impact on our results of operations, financial condition, and cash flows.

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The change in AUM in our institutional and retail accounts for the three months ended March 31, 2016 and 2015 is described below. Inflows are composed of the investment of new or additional assets by new or existing clients. Outflows consist of redemptions of assets by existing clients.



Assets Under Management
($ billions)
	For the Three Months Ended March 31,
	2016			2015

Institutional Accounts
Assets
Beginning of Period	$	14.9		$	15.6
Inflows	0.4			1.1
Outflows	(0.7		)	(0.9		)
Net Flows	(0.3		)	0.2
Market Appreciation/(Depreciation)	(0.1		)	0.1
End of Period	$	14.5		$	15.9

Retail Accounts
Assets
Beginning of Period	$	11.1		$	12.1
Inflows	0.8			0.4
Outflows	(0.3		)	(0.4		)
Net Flows	0.5			—
Market Appreciation/(Depreciation)	—			(0.1		)
End of Period	$	11.6		$	12.0

Total
Assets
Beginning of Period	$	26.0		$	27.7
Inflows	1.2			1.5
Outflows	(1.0		)	(1.3		)
Net Flows	0.2			0.2
Market Appreciation/(Depreciation)	(0.1		)	—
End of Period	$	26.1		$	27.9

Three Months Ended March 31, 2016 versus March 31, 2015

At March 31, 2016 , we managed $14.5 billion in institutional accounts and $11.6 billion in retail accounts, for a total of $26.1 billion in assets. For the three months ended March 31, 2016 , we experienced total gross inflows of $ 1.2 billion partially offset by total gross outflows of $1.0 billion and market depreciation of $0.1 billion . Assets in institutional accounts decreased by $0.4 billion , or 2.7% , from $14.9 billion at December 31, 2015 , due to $0.7 billion in gross outflows and $0.1 billion in market depreciation, partially offset by $0.4 billion in gross inflows. Assets in retail accounts increased by $0.5 billion , or 4.5% , from $11.1 billion at December 31, 2015 due to $0.8 billion in gross inflows partially offset by $0.3 billion in gross outflows.

At March 31, 2015 , we managed $15.9 billion in institutional accounts and $12.0 billion in retail accounts, for a total of $27.9 billion in assets. For the three months ended March 31, 2015 , we experienced total gross inflows of $1.5 billion partially offset

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by total gross outflows of $1.3 billion . For the three months ended March 31, 2015 , assets in institutional accounts increased by $0.3 billion , or 1.9% , due to $1.1 billion in gross inflows and $0.1 billion in market appreciation, partially offset by $0.9 billion in gross outflows. For the three months ended March 31, 2015 , assets in retail accounts decreased by $0.1 billion , or 0.8% , as a result of $0.4 billion in gross outflows and $0.1 billion in market depreciation, partially offset by $0.4 billion in gross inflows.

Revenues

Our revenue from advisory fees earned on our institutional accounts and our retail accounts for the three months ended March 31, 2016 and 2015 is described below:



	For the Three Months Ended March 31,
Revenue	2016		2015
	(in thousands)
Institutional Accounts	$	18,997	$	20,969
Retail Accounts	6,841		7,684
Total	$	25,838	$	28,653

Three Months Ended March 31, 2016 versus March 31, 2015

Our total revenue decreased by $2.8 million , or 9.8% , to $25.8 million for the three months ended March 31, 2016 , from $28.7 million for the three months ended March 31, 2015 . This change was driven primarily by a decrease in our average AUM due to market depreciation. Average AUM decreased 9.1% to $25.1 billion from $27.6 billion for the three months ended March 31, 2016 and 2015 , respectively.

Our weighted average fees were 0.411% and 0.415% for the three months ended March 31, 2016 and 2015 , respectively.

Average assets in institutional accounts decreased $1.5 billion to $14.1 billion for the three months ended March 31, 2016 , from $15.6 billion for the three months ended March 31, 2015 , and had weighted average fees of 0.539% and 0.536% for the three months ended March 31, 2016 and 2015 , respectively. The increase in weighted average fee rates primarily reflects the addition of assets in certain non-U.S. strategies that generally carry higher fee rates.

Average assets in retail accounts decreased $1.0 billion to $11.0 billion for the three months ended March 31, 2016 , from $12.0 billion for the three months ended March 31, 2015 , and had weighted average fees of 0.247% and 0.256% for the three months ended March 31, 2016 and 2015 , respectively. The decrease in retail weighted average fee rates primarily reflects a decrease in retail performance fees.

Expenses

Our operating expenses are driven primarily by our compensation and benefits costs. The table below describes the components of our operating expenses for the three months ended March 31, 2016 and 2015 .



	For the Three Months Ended March 31,
	2016		2015
	(in thousands)
Cash Compensation and Other Benefits	$	10,897	$	10,597
Other Non-Cash Compensation	1,601		1,473
Total Compensation and Benefits Expense	12,498		12,070
General and Administrative Expense	3,044		3,603
Total Operating Expenses	$	15,542	$	15,673

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Three Months Ended March 31, 2016 versus March 31, 2015

Total operating expenses decreased by $0.1 million , or 0.8% , to $15.5 million for the three months ended March 31, 2016 , from $15.7 million for the three months ended March 31, 2015 . This decrease was attributable to a a decrease in general and administrative costs, partially offset by an increase in our compensation and benefits expenses.

Compensation and benefits expense increased by approximately $0.4 million , or 3.5% , to $12.5 million for the three months ended March 31, 2016 , from $12.1 million for the three months ended March 31, 2015 . This increase was primarily attributable to a $0.3 million increase in cash compensation due to an increase in compensation and headcount during 2016.

General and administrative expense decreased by $0.6 million , or 15.5% , to $3.0 million for the three months ended March 31, 2016 from $3.6 million for the three months ended March 31, 2015 . This decrease primarily reflects $0.3 million in non-recurring lease expenses associated with our former corporate headquarters in the first quarter of 2015 and certain non-recurring operational expenses.

Other Expense

Three Months Ended March 31, 2016 versus March 31, 2015

Other Expense was $0.7 million for the three months ended March 31, 2016 , and consisted primarily of $0.9 million in expense related to adjustments to our liability to our selling and converting shareholders, partially offset by $0.1 million in gains and other investment income from investments and $0.1 million in dividend income. Other Expense was $0.3 million for the three months ended March 31, 2015 , and consisted primarily of $0.2 million of expense related to adjustments to our liability to our selling and converting shareholders. As discussed further below, the liability to our selling and converting shareholders represents 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we realize as a result of the amortization of the increases in tax basis generated from our purchase of operating company units from our selling shareholders.

Income Tax Expense

For the three months ended March 31, 2016 and 2015 , components of our income tax expense are as follows :



	For the Three Months Ended March 31,
	2016			2015
	(in thousands)
Unincorporated and Other Business Tax Expenses	$	465		$	524
Corporate Tax Expense:
Corporate Income Tax Expense	815			930
Change in Valuation Allowance	(1,060		)	(366		)
Total Corporate Tax (Benefit)/ Expense	(245		)	564
Total Income Tax Expense	$	220		$	1,088

Our results for the three months ended March 31, 2016 and 2015 included the effects of adjustments related to our tax receivable agreement and the associated liability as well as non-recurring lease expenses discussed in "Expenses" above. Details of corporate tax expenses excluding these items and reconciliations between our GAAP and non-GAAP corporate tax items are as follows:



	For the Three Months Ended March 31,
	2016			2015
	(in thousands)
Corporate Tax (Benefit)/ Expense	$	(245	)	$	564
Effects of One Time Adjustments	—			25
Less: Change in the Valuation Allowance Associated with the Tax Receivable Agreement	1,061			297
Non-GAAP Corporate Tax Expense	$	816		$	886

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Our effective tax rate, exclusive of adjustments related to our tax receivable agreement and the associated liability to selling and converting shareholders and adjustments related to non-recurring expenses recognized in operating expense in the first quarter of 2016 , was 36.2% and 35.6% for the three months ended March 31, 2016 and 2015 , respectively, and was determined as follows:



	For the Three Months Ended March 31,
	2016					2015
	Tax			% of Non- GAAP Pre-tax Income		Tax			% of Non- GAAP Pre-tax Income
	(in thousands)					(in thousands)
Federal Corporate Tax	$	767		34.0	%	$	847		34.0	%
State and Local Taxes, Net of Federal Benefit	64			2.9	%	80			3.2	%
Other Adjustments	(15		)	(0.7	)%	(41		)	(1.6	)%
Non-GAAP Effective Taxes	$	816		36.2	%	$	886		35.6	%

A comparison of the GAAP effective tax rates for the three months ended March 31, 2016 and 2015 is not meaningful due to the valuation allowance adjustments.

Three Months Ended March 31, 2016 versus March 31, 2015

Income Tax Expense was $0.2 million for the three months ended March 31, 2016 and $1.1 million for the three months ended March 31, 2015 . Income Tax Expense for the three months ended March 31, 2016 and 2015 included $1.1 million and $0.4 million of benefit, respectively, associated with decreases to the valuation allowance recorded against our deferred tax asset. The remaining income tax expense for the three months ended March 31, 2016 consisted of $0.5 million in operating company unincorporated and other business taxes and $0.8 million of corporate income taxes. The remaining income tax expense for the three months ended March 31, 2015 , consisted of $0.5 million of operating company unincorporated and other business taxes and $0.9 million of corporate income taxes.

Net Income Attributable to Non-Controlling Interests

Three Months Ended March 31, 2016 versus March 31, 2015

Net income attributable to non-controlling interests was $7.7 million for the three months ended March 31, 2016 , and consisted of $7.7 million associated with our employees’ and outside investors’ approximately 77.4% weighted average interest in the income of the operating company. Net income attributable to non-controlling interests was $10.0 million for the three months ended March 31, 2015 , and consisted of $10.0 million associated with our employees’ and outside investors’ approximately 80.2% weighted average interest in the income of the operating company, partially offset by $0.1 million in losses associated with the non-controlling interest in the losses of our consolidated entities. The change in net income attributable to non-controlling interests primarily reflects the decrease in net income for the three months ended March 31, 2016 and the the decrease in our employees’ and outside investors’ weighted average interest in the income of the operating company. We expect the interests in our operating company in subsequent periods to depend on changes in our shareholder’s equity and the size and composition of Class B units awarded by our operating company’s compensation plans.

Liquidity and Capital Resources

Historically, the working capital needs of our business have primarily been met through the cash generated by our operations. Distributions to members of our operating company are our largest use of cash. Other activities include purchases and sales of investments to fund our deferred compensation program, capital expenditures, and supporting strategic growth initiatives such as providing the initial cash investment in our mutual funds.

We expect to fund the liquidity needs of our business in the next twelve months, and over the long term, primarily through cash generated from operations. As an investment management company, our business is materially affected by conditions in the global financial markets and economic conditions throughout the world. Our liquidity is highly dependent on the revenue and income from our operations, which is directly related to our levels of AUM. For the three months ended March 31, 2016 , our

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average AUM and revenues decreased by 9.1% and 9.8% , respectively, compared to our average AUM and revenues for the three months ended March 31, 2015 . At March 31, 2016 , cash and cash equivalents was $20.5 million , inclusive of $3.8 million in cash held by our consolidated subsidiaries. Advisory fees receivable was $21.3 million . We also had approximately $10.0 million in investments set aside to satisfy our obligations under our deferred compensation programs.

In determining the sufficiency of liquidity and capital resources to fund our business, we regularly monitor our liquidity position, including, among other things, cash, working capital, investments, long-term liabilities, lease commitments, and operating company distributions. Compensation is our largest expense. To the extent we deem necessary and appropriate to run our business, recognizing the need to retain our key personnel, we have the ability to change the absolute levels of our compensation packages, as well as change the mix of their cash and non-cash components. Historically, we have not tied our level of compensation directly to revenue, as many Wall Street firms do. Correspondingly, there is not a linear relationship between our compensation and the revenues we generate. This generally has the effect of increasing operating margins in periods of increased revenues, but can reduce operating margins when revenue declines.

We regularly evaluate our staffing requirements and compensation levels with reference to our own liquidity position and external peer benchmarking data. The result of this review directly influences management’s recommendations to our Board of Directors with respect to such staffing and compensation levels.

We anticipate that tax allocations and dividend equivalent payments to the members of our operating company, which consist of certain of our employees, unaffiliated persons, former employees, and us, will continue to be a material financing activity. Cash distributions to operating company members for partnership tax allocations would increase should the taxable income of the operating company increase. Dividend equivalent payments will depend on our dividend policy and the discretion of our Board of Directors, as discussed below.

We believe that our lack of long-term debt, and ability to vary cash compensation levels, have provided us with an appropriate degree of flexibility in providing for our liquidity needs.

Dividend Policy

We are a holding company and our primary investment is our ownership of membership interests in our operating company. As a result, we depend upon distributions from our operating company to pay any dividends that our Board of Directors may declare to be paid to our Class A common stockholders. When, and if, our Board of Directors declares any such dividends, we then cause our operating company to make distributions to us in an amount sufficient to cover the dividends declared. Our dividend policy has certain risks and limitations, particularly with respect to liquidity. We may not pay dividends to our Class A common shareholders in amounts that have been paid to them in the past, or at all, if, among other things, we do not have the cash necessary to pay our intended dividends. To the extent we do not have cash on hand sufficient to pay dividends in the future, we may decide not to pay dividends. By paying cash dividends rather than investing that cash in our future growth, we risk slowing the pace of our growth, or not having a sufficient amount of cash to fund our operations or unanticipated capital expenditures, should the need arise.

On an annual basis, our Board of Directors has targeted a cash dividend payout ratio of approximately 70% to 80% of our non-GAAP diluted net income, subject to growth initiatives and other funding needs. Our ability to pay dividends is subject to the Board of Directors’ discretion and may be limited by our holding company structure and applicable provisions of Delaware law.

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Tax Receivable Agreement

Our purchase of membership units of our operating company concurrent with our initial public offering, and the subsequent and future exchanges by holders of Class B units of our operating company for shares of our Class A common stock (pursuant to the exchange rights provided for in the operating company’s operating agreement), has resulted in, and is expected to continue to result in, increases in our share of the tax basis of the tangible and intangible assets of our operating company, which will increase the tax depreciation and amortization deductions that otherwise would not have been available to us. These increases in tax basis and tax depreciation and amortization deductions have reduced, and are expected to continue to reduce, the amount of cash taxes that we would otherwise be required to pay in the future. We entered into a tax receivable agreement with the current members of our operating company, the one member of our operating company immediately prior to our initial public offering who sold all membership units to us in connection with our initial public offering and any future holders of Class B units. This tax receivable agreement requires us to pay these members 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we actually realize (or are deemed to realize in the case of an early termination payment by us, or a change in control, as described in the tax receivable agreement) as a result of the increases in tax basis described above and certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.

Cash Flows

Three Months Ended March 31, 2016 versus March 31, 2015

Cash and cash equivalents decreased $14.9 million to $20.5 million during the three months ended March 31, 2016 compared to a $18.0 million decrease in cash and cash equivalents to $21.1 million during the three months ended March 31, 2015 . Net cash provided by operating activities increased $4.2 million in the three months ended March 31, 2016 to $12.2 million from $7.9 million in the three months ended March 31, 2015 . The increase was primarily due to changes in operating assets and liabilities, and working capital.

Net cash used in investing activities decreased $1.1 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 . The decrease was primarily due to a $3.2 million decrease in cash used in the purchases of property and equipment during the three months ended March 31, 2016 , partially offset by the $2.2 million increase in net purchases and proceeds of investments during the three months ended March 31, 2016 .

Net cash used in financing activities increased $2.0 million for the three months ended March 31, 2016 to $25.7 million from $23.7 million for the three months ended March 31, 2015 . The increase is primarily due to a $0.7 million increase in dividend payments, partially offset by a $0.3 million decrease in distributions in non-controlling interests and a $0.1 decrease in contributions from non-controlling interests during the three months ended March 31, 2016 . Unlike the three months ended March 31, 2015 , net cash used in financing activities was not impacted by cash received for the exercise of options to purchase Class B units during the three months ended March 31, 2016 .

Contractual Obligations

The lease for our former corporate headquarters expired in October 2015. We entered into a new 11-year lease agreement in June 2014, the term of which commenced in October 2014. Annual minimum rent during the term is approximately $2.0 million. In April 2015, we entered into a five-year sublease agreement, which is cancelable by either the Company or sublessee given appropriate notice after the the third anniversary of the May 1, 2015 commencement of the sublease agreement. The sublease income reduces our annual minimum lease payments during its term by $0.4 million per year.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2016 .

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements, in accordance with U.S. generally accepted accounting principles ("GAAP"), requires management to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

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Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial condition. Management believes that the critical accounting policies discussed below involve additional management judgment due to the sensitivity of the methods and assumptions used.

Consolidation

Our policy is to consolidate all majority-owned subsidiaries in which we have a controlling financial interest and variable-interest entities of which we are deemed to be the primary beneficiary. We assess our consolidation practices regularly, as circumstances dictate. All significant inter-company transactions and balances have been eliminated.

During the first quarter of 2016, the Company adopted ASU No. 2015-02, “ Consolidation (Topic 810): Amendments to the Consolidation Analysis ,” issued by the FASB in February 2015. This standard modifies consolidation guidance for reporting organizations that are required to evaluate whether certain legal entities should be consolidated. The Company elected to adopt ASU No. 2015-02 under a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the January 1, 2016. The adoption of ASU No. 2015-02 resulted in the deconsolidation of entities previously included in our consolidated results as the Company no longer has a controlling financial interest in those entities. The effects of ASU No. 2015-02 on the Company’s consolidated financial statements are included in “Note 2 — Significant Accounting Policies” of this Quarterly Report on Form 10-Q.

Income Taxes

We are a “C” corporation under the Internal Revenue Code, and thus liable for federal, state and local taxes on the income derived from our economic interest in our operating company. The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes. Our operating company has not made a provision for federal or state income taxes because it is the responsibility of each of the operating company’s members (including us) to separately report their proportionate share of the operating company’s taxable income or loss. Similarly, the income of our consolidated subsidiaries is not subject to income taxes, as such income is allocated to each partnership’s individual partners. The operating company has made a provision for New York City Unincorporated Business Tax.

We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases, net operating loss carryforwards and tax credits. A valuation allowance is maintained for deferred tax assets that we estimate are more likely than not to go unrealizable based on available evidence at the time the estimate is made. Determining the valuation allowance requires management to make significant judgments and assumptions. In determining the valuation allowance, we use historical and forecasted future operating results, based upon approved business plans, including a review of the eligible carryforward periods, tax planning opportunities and other relevant considerations. Each quarter, we re-evaluate our estimate related to the valuation allowance, including our assumptions about future taxable income.

We believe that the accounting estimate related to the $52.9 million valuation allowance, recorded against the deferred tax asset associated with our acquisition of operating company membership units, is a critical accounting estimate because the underlying assumptions can change from period to period. For example, tax law changes, or variances in future projected operating performance, could result in a change in the valuation allowance. If we are not able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax asset valuation allowance would be charged to income tax expense in the period such determination was made.

Tax benefits related to stock option windfall deductions are not recognized until they result in a reduction of cash taxes payable. The benefit of these excess tax benefits will be recorded in equity when they reduce cash taxes payable. We will only recognize a tax benefit from stock- and unit-based awards in Additional Paid-in Capital if an incremental tax benefit is realized after all other tax benefits currently available have been utilized. During the three months ended March 31, 2016 and 2015 , we had approximately less than $0.1 million and $0.1 million in tax benefits, respectively, associated with stock- and unit-based awards that we were not able to recognize. This amount is reflected as an unrecognized tax benefit and is not included in the balance of our deferred tax asset.

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Management's judgment is required in determining our provision for income taxes, evaluating our tax positions and establishing deferred tax assets and liabilities. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. If the ultimate resolution of uncertainties is different from currently estimated, it could affect income tax expense and the effective tax rate.

Recently Issued Accounting Pronouncements Not Yet Adopted

See Note 2, "Significant Accounting Policies — Recently Issued Accounting Pronouncements Not Yet Adopted" in addition to the consolidated financial statements beginning on page 1 of this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

Our exposure to market risk is directly related to our role as investment adviser for the institutional separate accounts we manage and the retail clients for which we act as sub-investment adviser.

Our revenue for the three months ended March 31, 2016 and 2015 was generally derived from advisory fees, which are typically based on the market value of our AUM, which can be affected by adverse changes in interest rates, foreign currency exchange and equity prices. Accordingly, a decline in the prices of securities would cause our revenue and income to decline, due to a decrease in the value of the assets we manage. In addition, such a decline could cause our clients to withdraw their funds in favor of investments offering higher returns or lower risk, which would cause our revenue and income to decline further.

The value of our AUM was $26.1 billion as of March 31, 2016 . A 10% increase or decrease in the value of our AUM, if proportionately distributed over all of our investment strategies, products, and client relationships, would cause an annualized increase or decrease in our revenues of approximately $10.7 million at our current weighted average fee rate excluding the impact of performance fees of 0.409%. There are differences in our fee rates across distribution channels, investment strategies and the size of client relationships. As such, a change in the composition of our AUM, in particular an increase in the proportion of our total assets under management attributable to strategies, clients or relationships with lower effective fee rates, could have a material negative impact on our overall weighted average fee rates and thus different impact to revenues on the same 10% increase or decrease in the value of our AUM.

We are also subject to market risk due to a decline in the value of the our holdings and the holdings of our consolidated subsidiaries, which, as of March 31, 2016 , consist primarily of marketable securities, investments in equity method investees, and securities sold short. At March 31, 2016 , the value of our assets subject to market risk was $18.3 million . At March 31, 2016 , the value of our liabilities subject to market risk was $2.6 million . Assuming a 10% increase or decrease, the fair value of assets and liabilities would have increased or decreased by $ 1.8 million and $ 0.3 million , respectively, at March 31, 2016 .

Exchange Rate Risk

A substantial portion of the accounts that we advise, or sub-advise, hold investments that are denominated in currencies other than the U.S. Dollar. Movements in the rate of exchange between the U.S. Dollar and the underlying foreign currency affect the values of assets held in accounts that we manage, thereby affecting the amount of revenues we earn. The value of our AUM was $26.1 billion as of March 31, 2016 and approximately 30% of our assets under management across our investment strategies were invested in strategies that primarily invest in securities of non-U.S. companies and approximately 33% of our assets under management were invested in securities denominated in currencies other than the U.S. Dollar. To the extent our assets under management are denominated in currencies other than the U.S. Dollar, the value of those assets under management will decrease with an increase in the value of the U.S. Dollar, or increase with a decrease in the value of the U.S. Dollar. Because we believe that many of our clients invest in those strategies in order to gain exposure to non-U.S. currencies, or may implement their own hedging programs, we do not hedge an investment portfolio’s exposure to a non-U.S. currency.

We have not adopted a corporate-level risk management policy to manage this exchange rate risk. Assuming that 33% of our assets under management is unvested in securities denominated in currencies other than the U.S. Dollar and excluding the impact of any hedging arrangements, a 10% increase or decrease in the value of the U.S. Dollar would decrease or increase the fair value of our assets under management by $0.9 billion, which would cause an annualized increase or decrease in revenues of approximately $3.6 million at our current weighted average fee rate excluding the impact of performance fees of 0.409%.

We operate in several foreign countries, but mainly in the United Kingdom. We incur operating expenses and have foreign currency-denominated assets and liabilities associated with these operations, although our revenues are predominately realized in U.S. Dollar. We do not believe that foreign currency fluctuations materially affect our results of operations and, as such, have not adopted a corporate-level risk management policy to manage this exchange rate risk.

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Interest Rate Risk

As of March 31, 2016 , our $20.5 million in cash and cash equivalents was primarily held in demand deposit accounts. As such, interest rate changes would not have a material impact on the income we earn from these deposits. Since the Company does not have any debt that bears interest at a variable rate, it did not have any direct exposure to interest rate risk at March 31, 2016 .

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Item 4. Controls and Procedures.

During the course of its review of our consolidated financial statements as of March 31, 2016 , our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2016 , our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have not been any changes in our internal control over financial reporting during the three months ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

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

Issuances

During the three months ended March 31, 2016 , in connection with new employee member grants, and employee equity purchases we issued an aggregate of 18,507 Class B units of our operating company and the corresponding number of shares of Class B common stock. Certain of these Class B units are Delayed Exchange Class B units, which have the right to receive dividend payments; but cannot be exchanged for shares of the Company's Class A common stock until seven years after the date of grant and do not carry rights associated with the tax receivable agreement.

These issuances did not involve any public offering, general advertising or general solicitation. The certificates representing the securities bear a restrictive legend. The securities were issued in a transaction not involving a public offering and were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The table below sets forth information regarding purchases of our Class A Common Stock on a monthly basis during the three months ended March 31, 2016 .



Period	(a) Total Number of Shares of Class A Common Stock Purchased	(b) Average Price Paid per Share of Class A Common Stock		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ¹	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ²
					(in millions)
January 1, 2016 through January 31, 2016	78,165	$	7.60	78,165	$	10.1
February 1, 2016 through February 29, 2016	22,353	7.12		22,353	10.0
March 1, 2016 through March 31, 2016	—	—		—	10.0
Total	100,518	$	7.49	100,518	$	10.0

¹ Our share repurchase program was announced on April 24, 2012. The Board of Directors authorized us to repurchase an aggregate of $10 million of our outstanding Class A common stock and the operating company's Class B units on the open market and in private transactions in accordance with applicable securities laws. In February 2014, the Company announced an increase of $20 million in the aggregate amount authorized under the repurchase program. The timing, number and value of common shares and units repurchased are subject to the Company’s discretion. The Company’s share repurchase program is not subject to an expiration date and may be suspended, discontinued, or modified at any time, for any reason.

² The dollar amount in the column entitled "Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs," reflects the remainder of the program and also reflects the repurchase of 2,207 of the operating company's Class B units during January 2016 for an average price of $8.60. Class B units are repurchased at fair value determined by reference to our Class A common stock on the date of transaction since Class B units are exchangeable for share of our Class A common stock on a one-for-one basis.

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Item 6. Exhibits.



Exhibit		Description of Exhibit
10.1		Form of Amended and Restated Agreement of Limited Partnership of Pzena Investment Management, LP, dated as of January 1, 2016, by and among Pzena Investment Management, Inc. and the Limited Partners names on the signature pages thereto (filed herewith)
31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) (filed herewith)
31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) (filed herewith)
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101		Materials from the Pzena Investment Management, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Changes in Equity, (iv) Consolidated Statements of Cash Flows, and (vi) related Unaudited Notes to the Consolidated Financial Statements, tagged in detail (furnished herewith).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 6, 2016



PZENA INVESTMENT MANAGEMENT, INC.

By:	/s/ R ICHARD S. P ZENA
	Name:	Richard S. Pzena
	Title:	Chief Executive Officer (Principal Executive Officer)

By:	/s/ G ARY J. B ACHMAN
	Name:	Gary J. Bachman
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit 10.1

Execution Version

_________________________________________________________________

PZENA INVESTMENT MANAGEMENT, LP

AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP

__________________________________________________________________

Dated as of January 1, 2016

THE PARTNERSHIP INTERESTS REPRESENTED BY THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS. SUCH INTERESTS MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME WITHOUT EFFECTIVE REGISTRATION UNDER SUCH ACT AND LAWS OR EXEMPTIONS THEREFROM, AND COMPLIANCE WITH THE OTHER SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.

Exhibit 10.1

Execution Version

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Page

ARTICLE I DEFINITIONS 1

ARTICLE II ORGANIZATIONAL MATTERS 6

2.1 Organization of Partnership 6

2.2 Name 6

2.3 Purpose 6

2.4 Principal Office; Registered Office 6

2.5 Term 6

2.6 Fiscal Year 6

2.7 Classes of Partnership Interests 6

2.8 Register 6

ARTICLE III CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS 7

3.1 Capital Contributions 7

3.2 Additional Capital Contributions 7

3.3 Capital Accounts 7

3.4 No Liability of Partners 8

3.5 Negative Capital Accounts 8

ARTICLE IV DISTRIBUTIONS AND ALLOCATIONS 9

4.1 Nonliquidating Distributions 9

4.2 Tax Distributions 9

4.3 Restrictions on Distributions 9

4.4 Withholding 9

4.5 Indemnification and Reimbursement for Payments on Behalf of a Limited Partner 9

4.6 Allocations of Partnership Income and Loss 10

4.7 Tax Allocations 10

4.8 Special Allocations 11

ARTICLE V PARTNERS AND MANAGEMENT OF THE PARTNERSHIP 11

5.1 Admission and Authority of General Partner 11



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Page

5.2 Officers Designation and Appointment 12

5.3 Voting 12

5.4 Compensation and Reimbursement of General Partner 12

5.5 Indemnification 12

ARTICLE VI RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS 13

6.1 Limitation of Liability 13

6.2 No Right of Partition 13

6.3 Access to Information 13

ARTICLE VII RECORDS AND REPORTS 13

7.1 Records and Accounting 13

7.2 Reports 13

ARTICLE VIII TAX MATTERS 13

8.1 Preparation of Tax Returns and Tax Elections 13

8.2 Tax Controversies 14

ARTICLE IX AMENDMENTS 15

9.1 Amendments 15

ARTICLE X TRANSFER, VESTING AND FORFEITURE OF PARTNERSHIP INTERESTS 16

10.1 Transfers of Partnership Interests 16

10.2 Terms and Conditions Applicable to Class B Partnership Interests 17

ARTICLE XI ADMISSION OF PARTNERS 18

11.1 Substituted Limited Partners 18

11.2 New Limited Partners and Issuance of Partnership Interests 19

11.3 Representations of New Limited Partners 19

ARTICLE XII WITHDRAWAL OR REMOVAL OF PARTNERS 19

12.1 Withdrawal of General Partner 19

12.2 Removal of General Partner 19

12.3 Withdrawal of Limited Partners 19

12.4 Removal of Limited Partners 20



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Page

12.5 Redemption of Partnership Interests 20

12.6 Exchange Procedures in Connection with an Exchange Notice 20

ARTICLE XIII DISSOLUTION AND LIQUIDATION 21

13.1 Dissolution 21

13.2 Liquidation 21

13.3 Distribution in Kind 21

13.4 Cancellation of Certificate of Limited Partnership 22

ARTICLE XIV GENERAL PROVISIONS 22

14.1 Power of Attorney 22

14.2 Severability 23

14.3 Notices 23

14.4 No Waiver 23

14.5 Copy on File 23

14.6 Governing Law 23

14.7 Binding Effect 23

14.8 Entire Agreement 23

14.9 Other Activities 23

14.10 Further Assurances 23

14.11 Counterparts 23

14.12 Table of Contents and Captions Not Part of Agreement 24

14.13 Arbitration 24



	iii

AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT

PZENA INVESTMENT MANAGEMENT, LP

A DELAWARE LIMITED PARTNERSHIP

THIS AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT of Pzena Investment Management, LP, a Delaware limited partnership, dated as of January 1, 2016, is adopted, and executed and agreed to, for good and valuable consideration, by Pzena Investment Management, Inc. as the General Partner and each other person that executes and delivers a counterpart of this Agreement and is included in the Register as a Limited Partner.

WHEREAS, the Partnership was formed pursuant to a Certificate of Limited Partnership dated as of December 23, 2015 which was executed by the General Partner and filed in the office of the Secretary of State of the State of Delaware on December 23, 2015;

WHEREAS, the Partnership has been governed by a Limited Partnership Agreement, by and between the General Partner and Gary J. Bachman, as the Initial Limited Partner, dated as of December 23, 2015 (the “ Original Agreement ”);

WHEREAS, in accordance with the Original Agreement, the General Partner now wishes to amend and restate the Original Agreement to permit the admission of new Limited Partners; and

WHEREAS, the parties desire to amend and restate the Original Agreement as set forth herein;

NOW, THEREFORE, in consideration of the agreements and covenants set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby amend and restate the Original Agreement in its entirety on the foregoing and following terms and conditions:

ARTICLE I

DEFINITIONS

The following definitions shall be applied to the terms used in this Agreement for all purposes, unless otherwise clearly indicated to the contrary.

“ Administrative Officer ” means each Person designated as an officer of the Partnership pursuant to Section 5.2 for so long as such Person remains an officer pursuant to the provisions of Section 5.2 .

“ Affiliate(s) ” means, with respect to any Person, any other Person that directly, or through one (1) or more intermediaries, controls or is controlling, controlled by, or under common control with, such Person. For the purposes of this definition, the term “control” and its corollaries shall mean the possession, directly

or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, contract, as trustee or executor or otherwise.

“ Agreement ” means this Amended and Restated Limited Partnership Agreement, as it may be amended, supplemented or restated from time to time.

“ Capital Account ” means the capital account maintained for a Partner pursuant to Section 3.3 .

“ Capital Contribution ” means the contribution made by a Limited Partner to the capital of the Partnership from time to time pursuant to Section 3.1(a) .

“ Capital Percentage ” means, with respect to a Limited Partner, as of any determination date, a percentage expressed as a fraction the numerator of which is the Capital Account balance of such Limited Partner and the denominator of which is the aggregate Capital Accounts balances of all Partners.

“ Certificate of Limited Partnership ” means the Partnership’s Certificate of Limited Partnership as filed with the Secretary of State of Delaware initially on December 23, 2015, as it may be amended, supplemented or restated from time to time.

“ Class A Share(s) ” means share(s) of Class A Common Stock of Pzena Inc.

“ Class B Equity Incentive Units ” means grants of (i) Class B Units, such as Delayed Exchange Class B Units and Restricted Class B Units; (ii) options to purchase Class B Units; and (iii) other Class B Unit-based awards, such as Phantom Class B Units issued by Pzena Investment Management, LLC pursuant to the 2006 Equity Incentive Plan, as amended and restated, and any other equity incentive plan that Pzena Investment Management, LLC may adopt in the future.

“ Class A Partnership Interest(s) ” means the Partnership Interest(s) held by the General Partner.

“ Class B Partnership Interest(s) ” means the vested and unvested Partnership Interest(s) held by the Limited Partners.

“ Class B Share(s) ” means share(s) of Class B common stock of Pzena Inc.

“ Class B Stockholders’ Agreement ” means the Class B Stockholders’ Agreement, initially dated as of October 30, 2007, by and among the Managing Member and holders of Class B Shares of Pzena Investment Management, LLC, as amended or modified from time to time.

“ Class B Unit(s) ” means the Class B Unit(s) of Pzena Investment Management, LLC.

“ Code ” means the Internal Revenue Code of 1986, as it may be amended from time to time (or any succeeding Law), and the Treasury Regulations promulgated pursuant thereto. References to sections of the Code shall include amended or successor provisions thereto.

“ Delaware Act ” means the Delaware Revised Uniform Limited Partnership Act, 6 Del. Code Ann. tit. 6, §§ 17‑101, et seq ., as it may be amended from time to time, and any successor to the Delaware Act.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

“ Exchange Date ” has the same meaning as that established in Exhibit B of the LLC Operating Agreement.

“ Exchange Notice ” has the same meaning as that established in Exhibit B of the LLC Operating Agreement.

“ Exit Exchange ” means the exchange of Class B Partnership Interests of a Limited Partner for Class B Units in connection with an exchange of Class B Units for Class A Shares effected pursuant to Exhibit B of the LLC Operating Agreement.

“ Exit Exchange Request ” has the meaning set forth in Section 12.6 hereof.

“ Fiscal Year ” has the meaning set forth in Section 2.6 hereof.

“ GAAP ” means generally accepted accounting principles in the United States as in effect at the time any applicable financial statements were prepared.

“ General Partner ” means Pzena Inc. and any other successor of Pzena Inc.

“ Governmental or Regulatory Authority ” means any instrumentality, subdivision, court, administrative agency, commission, official or other authority of the United States or any other country or any state, province, prefect, municipality, locality or other government or political subdivision thereof, or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority.

“ Gross Asset Value ” means, with respect to any asset of the Partnership, such asset’s adjusted basis for federal income tax purposes, except as follows:

(a) the initial aggregate Gross Asset Values of the assets of the Partnership as of the date of this Agreement shall be as set forth on the books and records of the Partnership;

(b) the initial Gross Asset Value of any asset contributed by a Partner to the Partnership will be the gross fair market value of such asset, as determined by the General Partner in its sole discretion;

(c) the Gross Asset Value of all Partnership assets will be adjusted to equal their respective gross fair market values, as determined by the General Partner in its sole discretion, immediately prior to: (i) the contribution of more than a de minimis amount of assets to the Partnership by a new or an existing Limited Partner as consideration for a Partnership Interest; (ii) the distribution by the Partnership to a Limited Partner of more than a de minimis amount of Partnership assets as consideration for all or a portion of the

Partnership Interest of such Limited Partner; (iii) the issuance, forfeiture (or redemption) of more than a de minimis amount of Partnership Interests after the date of this Agreement; (iv) the liquidation of the Partnership within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g); and (v) such other times as the General Partner may determine in its sole discretion; provided that adjustments pursuant to clauses (i), (ii) and (iii) of this sentence will be made only if the General Partner, in its sole discretion, determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership;

(d) the Gross Asset Value of any Partnership asset distributed to any Limited Partner will be adjusted so as to equal the gross fair market value of such asset on the date of distribution, as determined by the General Partner, in its sole discretion, and any increase or decrease required to effect such adjustment will be treated as an item of Partnership Income or Partnership Loss, as applicable; and

(e) if the Gross Asset Value of an asset has been determined or adjusted pursuant to paragraph (b), (c) or (d) above, such Gross Asset Value will thereafter be adjusted by the depreciation taken into account with respect to such asset for purposes of computing Partnership Income and Partnership Loss.

“ Indemnified Person ” has the meaning set forth in Section 5.5 hereof.

“ Invitation to Subscribe ” means the Invitation to Subscribe for Limited Partnership Interests commenced by Pzena Investment Management, LLC on December 3, 2015; a copy of the disclosure document, dated December 3, 2015, describing the Invitation to Subscribe is attached hereto as Annex A .

“ Law ” means any statute, law, ordinance, rule or regulation of any Governmental or Regulatory Authority.

“ Lien ” means a mortgage, pledge, hypothecation, right of others, claim, security interest, encumbrance, easement, right of way, restriction on the use of real property, title defect, title retention agreement, voting trust agreement, option, right of first refusal, lien, charge, license to third parties, lease to third parties, restriction on transfer or assignment, or other restriction or limitation of any nature or irregularities in title.

“ Limited Partner ” means those Person(s) that have executed and delivered a counterpart of this Agreement and are named in the Register as a Limited Partner.

“ LLC Initial Managing Principal ” means Richard S. Pzena, John P. Goetz, A. Rama Krishna and William L. Lipsey.

“ LLC Operating Agreement ” means that certain Amended and Restated Limited Liability Company Operating Agreement of Pzena Investment Management, LLC dated October 30, 2007, as last amended by that certain Amendment No. 3 to Amended and Restated Operating Agreement dated November 1, 2014, as may be further amended from time to time.

“ Managing Member ” means the Managing Member of Pzena Investment Management, LLC.

“ Original Agreement ” has the meaning set forth in the preamble hereof.

“ Partner ” means the General Partner or a Limited Partner.

“ Partnership ” means the limited partnership organized pursuant to the Certificate of Limited Partnership.

“ Partnership Income ” and “ Partnership Loss ” for any period, mean, respectively, the profits, income, gain, credit, deduction or loss determined by the Partnership in accordance with GAAP. In the event that the Gross Asset Value of any Partnership asset is adjusted pursuant to subparagraphs (c) or (d) of the definition of Gross Asset Value, the amount of such adjustment will be treated as an item of Partnership Income (if the adjustment increases the Gross Asset Value of the asset) or Partnership Loss (if the adjustment decreases the Gross Asset Value of the Asset) from the disposition of such asset, and shall be taken into account in determining Partnership Income and Partnership Loss.

“ Partnership Interest ” means the vested and unvested interest in items of Partnership income, gain, loss and deduction pursuant to Section 3.3(b) held by a Partner in its capacity as a Partner and by any assignee of such interest (or any portion thereof) in its capacity as such.

“ Percentage Interest ” means, with respect to any Partner as of any particular time, the fraction, the numerator of which is the number of Partnership Interests set forth opposite such Partner’s name on the Register, and the denominator of which is the aggregate number of Partnership Interests of all Partners set forth on the Register.

“ Partnership Group ” means the General Partner, Pzena Investment Management, LLC, and any Person directly or indirectly controlled by or under common control with the General Partner or Pzena Investment Management, LLC.

“ Permitted Transferee ” means, with respect to a Limited Partner, any Person to whom such Limited Partner (or, in the case of a subsequent Transfer, a Partnership Interest Permitted Transferee of such Limited Partner) transferred Class B Partnership Interests pursuant to the terms of this Agreement.

“ Person ” means a natural person, partnership (whether general or limited), limited liability company, trust, estate, association, corporation, custodian, nominee or any other individual or entity in its own or any representative capacity.

“ Preliminary LP Vote ” has the meaning set forth in Section 5.3(b) hereof.

“ Pzena Inc. ” means Pzena Investment Management, Inc., a Delaware corporation.

“ Register ” has the meaning set forth in Section 2.8 hereof.

“ Revised Partnership Audit Procedures ” means the provisions of Subchapter C of Subtitle A, Chapter 63 of the Code, as amended by P.L. 114 74, the Bipartisan Budget Act of 2015 (together with any subsequent

amendments thereto, Treasury Regulations promulgated thereunder, and published administrative interpretations thereof).

“ Securities Act ” means the United States Securities Act of 1933, as amended, and applicable rules and regulations thereunder, and any successor to such statute, rules or regulations. Any reference herein to a specific section, rule or regulation of the Securities Act shall be deemed to include any corresponding provisions of future law.

“ Super Majority in Interest of the Limited Partners ” means, as of the time of determination, Limited Partners holding more than 66-2/3% of the Class B Partnership Interests at such time.

“ Tax Allowance Amount ” means, with respect to any Limited Partner for any fiscal quarter of the Partnership, an amount equal to the product of: (i) the highest combined federal and applicable state and local tax rate applicable to any Limited Partner in respect of the taxable income and taxable loss of the Partnership in respect of such fiscal quarter, taking into account the deductibility of state and local taxes for federal income tax purposes, times (ii) an amount equal to the remainder of (a) such Limited Partner’s share of the estimated net taxable income allocable to such Limited Partner arising from its ownership of an interest in the Partnership calculated through such fiscal quarter minus (b) the sum of (1) any net losses (for income tax purposes) of the Partnership for prior Fiscal Years and such fiscal quarter that are allocable to such Limited Partner that were not previously utilized in the calculation of the Tax Allowance Amounts in a prior Fiscal Year and (2) the amount of all prior Distributions for such Fiscal Year, all as determined by the General Partner.

“ Tax Matters Representative ” has the meaning set forth in Section 8.2 .

“ Transfer ” means, as a noun, any voluntary or involuntary transfer, sale, assignment, pledge, hypothecation, creation of a security interest or other disposition and, as a verb, voluntarily or involuntarily to transfer, sell, assign, pledge, hypothecate, grant a security interest in or otherwise dispose of.

ARTICLE II

ORGANIZATIONAL MATTERS

2.1 Organization of Partnership . The General Partner has determined to organize the Partnership as a limited partnership pursuant to the provisions of the Delaware Act.

2.2 Name . The name of the Partnership shall be Pzena Investment Management, LP, provided that the General Partner shall have the right to change the name of the Partnership, upon written notice to each of the Limited Partners.

2.3 Purpose . The Partnership’s purpose shall be to engage in any lawful act or activity for which limited partnerships may be formed under the Delaware Act. The Partnership shall possess and may exercise all the powers and privileges granted by the Delaware Act or by any other law, together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business, purposes or activities of the Partnership.

2.4 Principal Office; Registered Office . The principal office of the Partnership shall be maintained at 320 Park Avenue, New York, New York, 10022, or at such other location as the General Partner may designate from time to time. The registered office of the Partnership in the State of Delaware shall be 2711 Centerville Road, Suite 400, Wilmington, New Castle County, Delaware 19801. The name of the Partnership’s registered agent at such address is Corporation Service Company.

2.5 Term . The Partnership was formed on December 23, 2015 upon the filing of the Certificate of Limited Partnership in accordance with the Delaware Act and shall continue in existence until dissolved or liquidated in accordance with Article XIII .

2.6 Fiscal Year . The fiscal year of the Partnership shall begin on January 1 and end on December 31 of each calendar year; provided that the initial fiscal year of the Partnership shall begin on the date of its formation and end on December 31 of the calendar year including such date.

2.7 Classes of Partnership Interests. The Partnership shall have two (2) classes of Partnership Interests: (a) Class A Partnership Interests, which shall be held by the General Partner and only the General Partner; and (b) Class B Partnership Interests, which shall be held by Limited Partners and only by Limited Partners. The Class B Partnership Interests may be vested or unvested, and except as expressly provided herein, any reference to Class B Partnership Interests shall be a reference to vested and unvested Class B Partnership Interests. Except as provided in this Agreement, (i) vested and unvested Class B Partnership Interests shall share equally in rights to allocations and distributions by the Partnership; (ii) Class B Partnership Interests may be redeemed pursuant to Section 12.5 ; (iii) unvested Class B Partnership Interests shall vest pursuant to Section 10.2 below; and (iv) vested and unvested Class B Partnership Interests may be forfeited by a Limited Partner under the circumstances and in the number set forth in this Agreement. The General Partner may admit Limited Partners and issue Class B Partnership Interests only in exchange for an equal number of Class B Units of Pzena Investment Management, LLC pursuant to the Invitation to Subscribe or for contributions, or on terms and conditions determined by the General Partner in its sole discretion, it being expressly understood and agreed among the Limited Partners that such contribution and such terms and conditions may be different from the corresponding terms and conditions for other Limited Partners.

2.8 Register . The General Partner shall maintain and modify, or cause to be maintained and modified, a register (the “ Register ”) that sets forth (a) the name and address of each Limited Partner and the General Partner; (b) the class of each Limited Partner; (c) with respect to a Permitted Transferee of a Limited Partner, the name of such Permitted Transferee and the Limited Partner who made the transfer to such transferee; (d) with respect to any unvested Class B Partnership Interests, the number and date of issuance of each tranche of Class B Partnership Interests issued or awarded to such Partner; (e) the vesting provisions, if any, applicable to each such tranche (which vesting provisions may be specified by reference to other documents held with the records of the Partnership); (f) the cancellation of Class B Partnership Interests upon the cancellation of the corresponding Class B Units; and (g) such other information as the General Partner may deem to be appropriate. In connection with any modification, the General Partner or an Administrative Officer designated by the General Partner shall duly execute a copy of the Register maintained in accordance with this Agreement. Absent manifest error, a duly executed Register shall be conclusive evidence as to the information contained therein.

ARTICLE III

CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS

3.1 Capital Contributions .

(a) The General Partner and each Limited Partner identified on the Register has the number of Class A and Class B Partnership Interests of such designation as set forth opposite the General Partner’s and each such Limited Partner’s name and each has been duly admitted to the Partnership. The Partnership shall also set forth in its books and records Capital Contributions made by each Limited Partner or the General Partner.

(b) No Partner shall be entitled to the return of its Capital Contributions at any particular time, except as specified herein.

3.2 Additional Capital Contributions .

(a) Upon becoming a Partner, each Partner that subsequently receives Class B Units from Pzena Investment Management, LLC together with Class B Shares shall be deemed to have contributed, and shall actually contribute, all such Class B Units and Class B Shares to the Partnership in exchange for Class B Partnership Interests pursuant to the terms of this Agreement.

(b) Except as provided in Section 3.2(a) hereof, no Partner shall be obligated to make any additional Capital Contributions. In addition, no Partner shall be permitted to make additional Capital Contributions of cash or property without the express permission of the General Partner, which permission may be withheld for any or no reason.

3.3 Capital Accounts .

(a) A separate capital account (“ Capital Account ”) shall be maintained for each Limited Partner on the books of the Partnership.

(b) The Capital Account for each Partner will be maintained in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv) and the following provisions:

(i) to such Limited Partner’s Capital Account there will be credited such Limited Partner’s Capital Contributions, such Limited Partner’s distributive share of Partnership Income and other items of income or gain specially allocated hereunder, and the amount of any Partnership liabilities that are assumed by such Limited Partner or that are secured by any Partnership assets distributed to such Limited Partner;

(ii) to such Limited Partner’s Capital Account there will be debited the amount of cash and the Gross Asset Value of any other property of the Partnership distributed to such Limited Partner pursuant to any provision of this Agreement, such Limited Partner’s distributive share of Partnership Losses and other items of loss, expense and deduction specially allocated hereunder, and the amount of any liabilities

of such Limited Partner that are assumed by the Partnership or that are secured by any property contributed by such Limited Partner to the Partnership;

(iii) in determining the amount of any liability for purposes of this subsection (b), there will be taken into account Section 752(c) of the Code and any other applicable provisions of the Code and the Treasury Regulations; and

(iv) such Limited Partner’s Capital Account will be appropriately adjusted to take into account any adjustments to the Gross Asset Value of Partnership assets in accordance with the definition of the term “Gross Asset Value” set forth in Article I .

(c) After the date of this Agreement, in the event that all or a portion of any Limited Partnership Interest is Transferred (other than pursuant to the granting of a Lien) in accordance with the terms of this Agreement, the transferee will succeed to the Capital Account of the transferor to the extent such Capital Account relates to the portion of the Limited Partnership Interest so Transferred, except to the extent otherwise agreed by the transferor, the transferee and the General Partner.

(d) No Limited Partner shall be entitled to receive any interest on or in respect of any amount credited to his/her/its Capital Account.

(e) Except as otherwise provided in this Agreement, no Limited Partner shall have the right to receive a return of any portion of its Capital Account.

3.4 No Liability of Partners .

(a) Notwithstanding anything to the contrary contained herein, no Partner, individually or collectively, shall be liable, responsible or accountable in damage or otherwise to the Partnership or to any Partner, successor, assignee or transferee except by reason of acts or omissions due to fraud or intentional misconduct or that constitute a violation of the implied contractual duty of good faith and fair dealing.

(b) In accordance with the Delaware Act and the laws of the State of Delaware, a partner of a limited partnership may, under certain circumstances, be required to return amounts previously distributed to such partner. It is the intent of the Partners that no distribution to any Limited Partner pursuant to Article IV hereof shall be deemed a return of money or other property paid or distributed in violation of the Delaware Act. The payment of any such money or distribution of any such property to a Limited Partner shall be deemed to be a compromise within the meaning of the Delaware Act, and the Limited Partner receiving any such money or property shall not be required to return to any Person any such money or property. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Limited Partner is obligated to make any such payment, such obligation shall be the obligation of such Limited Partner and not of any other Partner.

3.5 Negative Capital Accounts . No Limited Partner shall be required to pay to the Partnership, the General Partner or any other Limited Partner any deficit or negative balance which may exist from time to time in such Limited Partner’s Capital Account.

ARTICLE IV

DISTRIBUTIONS AND ALLOCATIONS

4.1 Nonliquidating Distributions . Subject to applicable Law and any limitations contained elsewhere in this Agreement, nonliquidating distributions of the Partnership’s available cash flow, earnings, income and other distributable items from the Partnership shall be made to the Limited Partners at such times and in such amounts as the General Partner determines from time to time. Such distributions shall be made pro rata to all Persons who are Limited Partners on the date of the distribution according to their respective Percentage Interests as of such date. Distributions may take the form of cash, securities or other property, as determined by the General Partner.

4.2 Tax Distributions . Notwithstanding Section 4.1 hereof, on or before the date that estimated income taxes are required to be paid, the General Partner shall determine the Tax Allowance Amount for each Limited Partner in respect of such quarter. Upon such determination, the Partnership shall distribute each Limited Partner’s Tax Allowance Amount to such Limited Partner. All such distributions shall have priority over any distributions pursuant to Section 4.1 hereof. Amounts distributed pursuant to this Section 4.2 shall be treated as distributions for all purposes of this Agreement and shall be offset against and reduce subsequent distributions made pursuant to Section 4.1 . For purposes of Section 3.04 of the LLC Operating Agreement, the Partnership shall report to the Managing Member the highest Tax Allowance Amount of any Limited Partner as the Tax Allowance Amount of the Partnership.

4.3 Restrictions on Distributions . Notwithstanding the provisions of Sections 4.1 and 4.2 hereof to the contrary, no distribution shall be made to the Limited Partners if such distribution would (i) violate any contract or agreement to which the Partnership is then a party or any Law then applicable to the Partnership, (ii) have the effect of rendering the Partnership insolvent or (iii) result in the Partnership having net capital lower than that required by applicable Law. Without limiting the generality of the foregoing, the Partnership shall not make a distribution to a Limited Partner to the extent that at the time of the distribution, after giving effect to the distribution, the aggregate of the liabilities of the Partnership and liabilities for which the recourse of creditors is limited to specified property of the Partnership, exceed the fair value of the assets of the Partnership (including, without limitation, the fair value of the Partnership’s goodwill), except that the fair value of property that is subject to a liability for which the recourse of creditors is limited shall be included in the assets of the Partnership only to the extent that the fair value of that property exceeds that liability.

4.4 Withholding . Each Limited Partner hereby authorizes the Partnership to withhold and to pay to any appropriate taxing authority any taxes payable by the Partnership as a result of such Limited Partner’s participation in the Partnership; if and to the extent that the Partnership shall be required to withhold and pay any such taxes, such Limited Partner shall be deemed for all purposes of this Agreement to have received a payment from the Partnership in the amount of the sum withheld as of the time such withholding is required to be paid to any appropriate taxing authority, which payment shall be deemed to be a distribution to such Limited Partner to the extent that the Limited Partner is then entitled to receive a distribution.

4.5 Indemnification and Reimbursement for Payments on Behalf of a Limited Partner . If the Partnership is required by Law to make any payment to a Governmental or Regulatory Entity that is specifically attributable to a Limited Partner or a Limited Partner’s status as such (including federal withholding taxes, state or local personal property taxes and state or local unincorporated business taxes), then such Limited Partner shall indemnify the Partnership in full for the entire amount paid (including interest, penalties and related expenses). A Limited Partner’s obligation to indemnify the Partnership under this Section 4.5 shall survive termination, dissolution, liquidation and winding up of the Partnership, and for purposes of this Section 4.5 , the Partnership shall be treated as continuing in existence. The Partnership may pursue and enforce all rights and remedies it may have against each Limited Partner under this Section 4.5 , including instituting a lawsuit to collect such indemnification, with interest calculated at a rate equal to the U.S. prime rate listed in The Wall Street Journal plus 2% (but not in excess of the highest rate per annum permitted by Law).

4.6 Allocations of Partnership Income and Loss .

(a) Subject to Sections 4.7 and 4.8 , Partnership Income and Loss for any fiscal period shall be allocated to the Limited Partners according to their Percentage Interests as of the first day of such fiscal period. Each Limited Partner’s Capital Account balance shall be adjusted at the end of each fiscal period by an amount equal to such allocations.

(b) Notwithstanding Section 4.6(a) , at such time as the Partnership makes any adjustments pursuant to clause (c) of the definition of Gross Asset Value, Partnership Income and Partnership Loss shall be allocated among the Limited Partners as follows:

(i) First, to the Limited Partners in such proportions and such amounts, as determined by the General Partner, as shall be necessary to cause the Capital Percentage of each Limited Partner to equal (or to be closer to) the Percentage Interest of such Limited Partner; and

(ii) Second, to all Limited Partners in proportion to their respective Percentage Interest.

(c) For purposes of determining the Partnership Income, Partnership Loss, or any other items allocable to any accounting period, Partnership Income, Partnership Loss and any such other items will be determined on a daily, monthly or other basis (but no less frequently than once annually), as determined by the General Partner using any permissible method described in Code Section 706 and the Treasury Regulations thereunder; provided that Partnership Income, Partnership Loss, and such other items will be allocated at such times as the Gross Asset Values of the Partnership are adjusted pursuant to subparagraph (c) of the definition of Gross Asset Value.

4.7 Tax Allocations .

(a) Allocations for Income Tax Purposes . The income, gains, losses, deductions and credits of the Partnership shall be allocated for federal, state and local income tax purposes among the Partners, as nearly as possible, as the corresponding items of Partnership Income and Partnership Loss were so allocated. If any Interest is transferred, or is increased or decreased by reason of the admission of a new

Partner or otherwise, during any Fiscal Year or other accounting period, each item of income, gain, loss, deduction, or credit of the Partnership for such period may be allocated based on any method consistent with Section 706(d) of the Code, in the sole discretion of the General Partner.

(b) Section 704(c) Allocations . Notwithstanding any other provision in this Section 4.7 , in accordance with Code Section 704(c) and the Treasury Regulations promulgated thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its fair market value on the date of contribution. Allocations pursuant to this Section 4.7(b) are solely for purposes of federal, state and local taxes. As such, they shall not affect or in any way be taken into account in computing a Partner’s Capital Account or share of Partnership Income, Partnership Loss, or other items or distributions pursuant to any provisions of this Agreement.

4.8 Special Allocations .

(a) If any Limited Partner unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation Section 1.704‑1(b)(2)(ii)(d)(4), (5) or (6), items of taxable income and gain shall be specially allocated to such Limited Partner in an amount and manner sufficient to eliminate the adjusted capital account deficit (determined according to Treasury Regulation Section 1.704‑1(b)(2)(ii)(d)) created by such adjustments, allocations or distributions as quickly as possible. This paragraph is intended to be a qualified income offset provision as described in Treasury Regulation Section 1.704‑1(b)(2)(ii)(d) and shall be interpreted in a manner consistent therewith. Notwithstanding any other provisions of this Article IV , allocations pursuant to this paragraph shall be taken into account in allocating Profits and Losses among the Limited Partners so that, to the extent possible, the net amount of such allocations of Profits and Losses and other items to each Limited Partner shall be equal to the net amount that would have been allocated to the Limited Partners if the allocations pursuant to this paragraph had not occurred.

(b) If the General Partner determines, after consultation with competent tax counsel, that the allocation of any item of Partnership Profit or Loss hereunder is clearly inconsistent with the Limited Partners’ economic interests in the Partnership (determined by reference to the principles of Treasury Regulation Sections 1.704‑1(b) and 1.704‑2), then the General Partner may specially allocate such item to reflect such economic interests.

ARTICLE V

PARTNERS AND MANAGEMENT OF THE PARTNERSHIP

5.1 Admission and Authority of General Partner .

(f) Admission of the General Partner. Upon execution of this Agreement, Pzena Inc. is hereby admitted to the Partnership as its sole general partner. In accordance with Section 17‑401(a) of the Delaware Act, Pzena Inc. is being admitted to the Partnership as its sole general partner without making a contribution to the capital of the Partnership, or being obligated to make a contribution to the capital of

the Partnership. If Pzena Inc. ceases to be the General Partner for any reason, any other successor to Pzena Inc. shall be the General Partner.

(g) Authority of the General Partner. The General Partner shall have all the rights and powers of a general partner as provided in the Delaware Act, under any other applicable laws and by this Agreement, except to the extent that such powers may be expressly limited by the Delaware Act, such other laws or this Agreement. Except as so limited, the General Partner shall have the exclusive right and power to manage the affairs of the Partnership and is authorized to do on behalf of the Partnership all things which, in its sole judgment, are necessary or appropriate to carry out the Partnership’s purpose. The Limited Partners, in their capacity as Limited Partners, shall not take part in the management or control of the Partnership. No Limited Partner may transact any business for the Partnership. Other than the General Partner in its capacity as the General Partner and other than Administrative Officers appointed pursuant to Section 5.2 , no Partner in its capacity as a Partner shall have any power to represent, act for, sign for or bind the Partnership.

(h) Delegation by the General Partner. The General Partner shall have the power and authority to delegate to one or more other Persons the General Partner’s rights and powers to manage and control the affairs of the Partnership, including to delegate to agents and employees of the General Partner or the Partnership (who may not be Limited Partners), and to delegate by a written agreement with, or otherwise to, other Persons other than a Limited Partner; provided that any such delegation by the General Partner shall not cause the General Partner to cease to be a General Partner of the Partnership. The General Partner may authorize any Person (including, without limitation, any Partner or Officer) to enter into and perform under any document on behalf of the Partnership.

5.2 Officers Designation and Appointment . The General Partner may, from time to time, appoint or remove one (1) or more administrative officers (individually, an “ Administrative Officer ,” and collectively, the “ Administrative Officers ”) from among the employees of Pzena Investment Management, LLC to carry out the business and affairs of the Partnership. No Administrative Officer may be a Limited Partner. Each Administrative Officer’s title and authority shall be as determined from time to time by the General Partner.

5.3 Voting .

(a) The Partnership shall become a party to the Class B Stockholders’ Agreement and shall be bound by the obligations therein.

(b) Prior to any vote of the stockholders of Pzena Inc. or any vote of the members of Pzena Investment Management, LLC, the Partnership shall hold a preliminary vote of the Limited Partners (“ Preliminary LP Vote ”) directing the General Partner how to vote with respect to any action called to vote at any meeting of the stockholders of Pzena Inc. or at any meeting of the members of Pzena Investment Management, LLC, as applicable. Such vote shall be in accordance with procedures established from time to time by the General Partner. Each Limited Partner shall have one vote for each Class B Partnership Interest held by such Limited Partner.

(c) The Partnership will calculate the results of the applicable Preliminary LP Vote based on its procedures as provided in Section 5.3(b) , and with respect to any action called to vote at a meeting of the stockholders of Pzena Inc. or members of Pzena Investment Management, LLC, the Partnership

will vote the Class B Shares or Class B Units it holds, as applicable, based on the majority vote resulting from the Preliminary LP Vote, which shares or units shall be voted in a block.

5.4 Compensation and Reimbursement of General Partner .

(a) Except as provided in this Section 5.4 or elsewhere in this Agreement, the General Partner shall not be compensated for its services as General Partner to the Partnership.

(b) The General Partner may, in its sole discretion, seek reimbursement from the Partnership for all reasonable amounts it pays or incurs in organizing or conducting the Partnership’s affairs, which is properly allocable to the Partnership. The General Partner shall determine the portion of its indirect expenses which is allocable to the Partnership in any reasonable manner.

5.5 Indemnification . To the fullest extent permitted by Law, the Partnership shall indemnify and hold harmless the General Partner and its partners, officers, directors, agents and employees (each an “ Indemnified Person ”) against any and all costs, losses, damages, liabilities, including legal fees and other expenses suffered or sustained by it by reason of (i) any act or omission arising out of or in connection with the Partnership or this Agreement, or (ii) any and all claims, demands, actions, suits or proceedings (civil, criminal, administrative or investigative), actual or threatened, in which such Indemnified Person may be involved, as a party or otherwise, arising out of or in connection with such Indemnified Person’s service to or on behalf of, or management of the affairs or assets of, the Partnership, or which relate to the Partnership, provided that the Indemnified Person’s acts, omissions or alleged acts or omissions were not made in bad faith or did not constitute gross negligence, willful misconduct or fraud and any such amount shall be paid by the Partnership to the extent assets are available, but the Limited Partner shall not have any personal liability to the General Partner on account of such loss, damage or expense.

ARTICLE VI

RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS

6.1 Limitation of Liability . Except as otherwise provided in this Agreement or in the Delaware Act, a Limited Partner’s liability for Partnership liabilities and Losses shall be limited pursuant to Section 3.4 .

6.2 No Right of Partition . No Limited Partner shall have the right to seek or obtain partition by court decree or operation of law of any Partnership property, or the right to own or use particular or individual assets of the Partnership.

6.3 Access to Information . Except for the information required to be provided to the Limited Partners under this Agreement and Section 17-305 of the Delaware Act, no Limited Partner shall have the right to demand from the Partnership, and the Partnership shall have no obligation to provide to any Limited Partner, any books or records of the Partnership.

ARTICLE VII

RECORDS AND REPORTS

7.1 Records and Accounting . The books and records of account of the Partnership shall be maintained in accordance with GAAP, consistently applied, and shall be reconciled to comply with the methods followed by the Partnership for United States Federal income tax purposes, consistently applied. The books and records shall be maintained at the Partnership’s principal office or at a location designated by the General Partner.

7.2 Reports . Within one hundred twenty (120) days after the end of each Fiscal Year, the General Partner shall cause to be prepared and mailed to each Partner one (1) or more reports setting forth, as of the end of such Fiscal Year, a statement of Partnership Income and the amount of such Partner’s Capital Account and, as soon as thereafter practicable, the amount of such Partner’s share of the Partnership’s taxable income or loss for such Fiscal Year, in sufficient detail to enable him to prepare his federal, state and other tax returns for the Fiscal Year. The financial statements described in this Section 7.2 shall be prepared in accordance with GAAP applied on a consistent basis (except as may be noted therein).

ARTICLE VIII

TAX MATTERS

8.1 Preparation of Tax Returns and Tax Elections .

(c) The General Partner shall arrange for the preparation and timely filing of all returns required to be filed by the Partnership. The General Partner, in its sole discretion, shall determine the accounting methods and conventions under the tax laws of the United States, the several states and other relevant jurisdictions as to the treatment of income, gain, loss, deduction and credit of the Partnership or any other method or procedure related to the preparation of such tax returns. The General Partner, in its sole discretion, may cause the Partnership to make or refrain from making any and all elections permitted by such tax laws.

(d) Each Partner agrees that, in respect of any year in which he has or had any interest in the Partnership, he shall not (i) treat, on his individual income tax returns, any item of income, gain, loss, deduction or credit relating to his interest in the Partnership in a manner inconsistent with the treatment of such item by the Partnership as reflected on the Form K-1 or other information statement furnished by the Partnership to such Partner for use in preparing his income tax returns or (ii) file any claim for refund relating to any such item based upon, or that would result in, such inconsistent treatment unless such Partner has been advised by counsel that treating such item in a manner consistent with the treatment of such item by the Partnership would subject such Partner to penalties under the Code.

8.2 Tax Controversies . The General Partner is hereby designated as the “tax matters partner” within the meaning of Section 6231(a)(7) of the Code prior to its amendment by the Revised Partnership Audit Procedures and as the “partnership representative” of the Partnership for any tax period subject to the provisions of Section 6223 of the Code, as amended by the Revised Partnership Audit Procedures (in each such capacity, the “ Tax Matters Representative ”), and in such capacity shall represent the Partnership in any disputes, controversies or proceedings with the Internal Revenue Service or with any state, local, or non-U.S. taxing authority and is hereby authorized to take any and all actions that it is permitted to take by applicable law when acting in that capacity. The Partners acknowledge and agree that it is the intention of

the Partners to minimize any obligations of the Partnership to pay taxes and interest in connection with any audit of the Partnership, including, if the Tax Matters Representative so determines, by means of elections under Section 6226 of the Code and/or the Partners filing amended returns under Section 6225(c)(2), in each case as amended by the Revised Partnership Audit Procedures. The Partners agree to cooperate in good faith, including without limitation by timely providing information reasonably requested by the Tax Matters Representative and making elections and filing amended returns reasonably requested by the Tax Matters Representative, to give effect to the preceding sentence. The Partnership shall make any payments it may be required to make under the Revised Partnership Audit Procedures and, in the Tax Matters Representative’s reasonable discretion, allocate any such payment among the current or former Partners of the Partnership for the “reviewed year” to which the payment relates in a manner that reflects the current or former Partners’ respective interests in the Partnership for that year and any other factors taken into account in determining the amount of the payment. To the extent payments are made by the Partnership on behalf of or with respect to a current Partner in accordance with this Section 8.2 , such amounts shall, at the election of the Tax Matters Representative, (i) be applied to and reduce the next distribution(s) otherwise payable to such Partner under this Agreement or (ii) be paid by the Partner to the Partnership within thirty (30) days of written notice from the Tax Matters Representative requesting the payment. In addition, if any such payment is made on behalf of or with respect to a former Partner, that Partner shall pay over to the Partnership an amount equal to the amount of such payment made on behalf of or with respect to it within thirty (30) days of written notice from the Tax Matters Representative requesting the payment. Any cost or expense incurred by the Tax Matters Representative in connection with its duties, including the preparation for or pursuance of administrative or judicial proceedings, will be paid by the Partnership or by the General Partner. The provisions contained in this Section 8.2 shall survive the dissolution of the Partnership and the withdrawal of any Partner or the Transfer of any Partner’s interest in the Partnership.

8.3

ARTICLE IX

AMENDMENTS

9.1 Amendments .

(d) The terms and provisions of this Agreement (including, for the avoidance of doubt, any Exhibit or Schedule hereto) may be modified or amended at any time and from time to time with the written consent of the General Partner and the Limited Partners holding more than 50% of the issued and outstanding Partnership Interest, provided that the General Partner may, without the consent of any of the other Partners, amend this Agreement:

(i) to satisfy any requirements, conditions, guidelines or opinions contained in any opinion, directive, order, ruling or regulation of the Securities and Exchange Commission, the Internal Revenue Service or any other U.S. federal or state or non-U.S. governmental agency, or in any U.S. federal or state or non-U.S. statute, compliance with which the General Partner deems to be in the best interest of the Partnership;

(ii) (A) to ensure that the Partnership will not be treated as (x) an association taxable as a corporation for U.S. federal income tax purposes or (y) a “publicly traded partnership” for purposes of Section 7704 of the Code or (B) to comply with the then existing requirements of the Code, final or temporary Treasury Regulations and the rulings of the Internal Revenue Service affecting the treatment of the Partnership for federal income tax purposes;

(iii) to change the name of the Partnership; or

(iv) to make any other change that is for the benefit of, or not adverse to the interests of, the Limited Partners.

(e) Notwithstanding the provisions of this Section 9.1 , no modification of or amendment to this Agreement shall be made that will:

(i) materially and adversely affect the rights of a Limited Partner, or increase the Capital Contribution obligations of a Limited Partner, without the written consent of such Limited Partner;

(ii) modify or amend Section 10.2 in a manner adverse to any Limited Partner without the written consent of either (x) such Limited Partner or (y) a Super Majority in Interest of the Limited Partners, provided that (A) no such modification or amendment pursuant to clause (y) of this Section 9.1(b)(ii) shall be effective unless each Limited Partner adversely affected thereby shall have received at least sixty (60) days’ prior notice thereof, (B) any such modification or amendment shall only apply to such Limited Partner if such Limited Partner is an employee of the Partnership Group at the end of such sixty (60) day period and (C) any Limited Partner who resigns during such sixty (60) day notice period shall be subject to such sections as in effect prior to such amendment or modification, provided, further, however,

that the General Partner may, without the consent of any of the Limited Partners, modify or amend Section 10.2 in a manner that applies solely to Limited Partners admitted following the time of such amendment; or

(iii) modify or amend the requirement in any provision of this Agreement (including this Section 9.1 ) calling for the preliminary vote of the Limited Partners, or of a Limited Partner, unless there is a change to the LLC Operating Agreement relating to the voting rights of Class B Unit Holders and/or the Class B Stockholders’ Agreement and the related preliminary voting procedures of Pzena Investment Management, LLC, in which case this Agreement may be amended by the General Partner consistent with any such change to preserve the voting rights of the Limited Partners as described in the Invitation to Subscribe.

ARTICLE X

TRANSFER, VESTING AND FORFEITURE OF PARTNERSHIP INTERESTS

10.1 Transfers of Partnership Interests .

(d) No Limited Partner shall Transfer, or suffer the Transfer of, such Limited Partner’s Class B Partnership Interests (including by way of indirect transfer resulting from the direct or indirect transfer of control of any entity which is a Limited Partner), in whole or in part, nor enter into any agreement as the result of which any Person shall become interested with such Limited Partner therein except subject to Section 10.1(d) , (i) with the prior written consent of the General Partner, which may be withheld in its sole discretion or (ii) by last will and testament to: (A) spouses or lineal descendants, (B) inter vivos trusts, (C) family limited partnerships or similar entities or (D) devices for the benefit of spouses and lineal descendants, on the condition in each case that each Transferee thereof expressly acknowledges and agrees in writing that such transferred Class B Partnership Interests (or such portion thereof) are subject to this Agreement and all of the terms and conditions hereof.

(e) No Limited Partner or transferee thereof shall, without the prior written consent of the General Partner, which may be withheld in its sole discretion, create, or suffer the creation of, a Lien in such Limited Partner’s Class B Partnership Interests.

(f) Except with the written consent of the General Partner, no Transfer of a Partnership Interest shall be permitted (and, if attempted, shall be void ab initio ) if, in the determination of the General Partner:

(i) such Transfer is made to any Person who lacks the legal right, power or capacity to own such Partnership Interest;

(ii) such Transfer would require the registration of such transferred Partnership Interest pursuant to any applicable United States federal or state securities laws (including, without limitation, the Securities Act or the Exchange Act) or other foreign securities laws or would constitute a non-exempt distribution pursuant to applicable state securities laws;

(iii) to the extent requested by the General Partner, the Partnership does not receive such legal and/or tax opinions and written instruments (including, without limitation, copies of any instruments of Transfer and such assignee’s consent to be bound by this Agreement as an assignee) that are in a form satisfactory to the General Partner, as determined in the General Partner’s sole discretion;

(iv) such a Transfer would pose a material risk that the Partnership would be a “publicly traded partnership” as defined in Section 7704 of the Code; or

(v) such Transfer would result in 50 percent or more of the Partnership’s total “partnership interests” having been “sold or exchanged” in any twelve (12) month period (within the meaning of Section 708(b)(1)(B) of the Code) and the resulting termination of the Partnership pursuant to Section 708(b)(1)(B) would, in the determination of the General Partner, have a more than immaterial adverse effect on the Partnership or the Partners.

(g) Any purported Transfer of Partnership Interests not in compliance with this Section 10.1 shall be void and shall not create any obligation of the party of the Partnership or its Partners to recognize such Transfer.

10.2 Terms and Conditions Applicable to Class B Partnership Interests . If a Limited Partner has received Class B Partnership Interests in exchange for Class B Units subject to terms and/or conditions, including, but not limited to, vesting restrictions and forfeiture requirements, either pursuant to the LLC Operating Agreement or an agreement for the awards of Class B Equity Incentive Units, then such Partnership Interests received in exchange for such Class B Units shall be subject to the same terms and/or conditions as such Class B Units, including, as relevant, as set forth below.

(iv) Partnership Interests Held by the General Partner . All Class A Partnership Interests held by the General Partner shall be fully vested and shall not be subject to forfeiture under this Section 10.2 for any reason.

(v) Partnership Interests Held by Limited Partners and their Permitted Transferees . All Class B Partnership Interests shall be vested or subject to vesting provisions as set forth on the Register. Unvested Class B Partnership Interests shall vest in accordance with the vesting schedule of the Class B Units contributed in exchange for the Class B Partnership Interests as set forth on the Register or in an agreement for an award of Class B Equity Incentive Units. Except as may be agreed in writing by the General Partner and a Limited Partner, Class B Partnership Interests held by a Permitted Transferee shall vest at the same times as such Class B Partnership Interests would have vested had such Class B Partnership Interests continued to be held by such Limited Partner.

(vi) Forfeiture of Unvested Class B Partnership Interests . Except as may be agreed in writing by the Partnership and a Limited Partner, all unvested Class B Partnership Interests held by a Limited Partner and all unvested Class B Partnership Interests transferred by such Limited Partner to, and held by, his or her Permitted Transferees, on the date of termination of employment of such Limited Partner with the Partnership Group shall be forfeited upon such termination.

(vii) In addition to the foregoing, vesting shall occur as specified in any agreement for an award of Class B Equity Incentive Units.

(d) Additional Forfeiture of Class B Partnership Interests .

(i) Termination for Cause . Subject to Section 10.2(b)(ii) , in the event that a Limited Partner’s employment by the Partnership Group has been terminated for Cause (as such term is defined in the LLC Operating Agreement), such Limited Partner and each of his or her Permitted Transferees shall each forfeit seventy-five percent (75%) of the number of vested Class B Partnership Interests and one hundred percent (100%) of the unvested Class B Partnership Interests held by such Limited Partner as of the date of such termination, unless the Board of Directors of the General Partner, in its sole discretion, determines otherwise.

(ii) Notwithstanding Section 10.2(b)(i) , at any time prior to or following a Transfer of Class B Partnership Interests by a Limited Partner, the transferring Limited Partner, the transferee and the General Partner may agree in writing, in the sole discretion of each such Person, that all or any portion of the Class B Partnership Interest that may be forfeited by a Permitted Transferee pursuant to Section 10.2(b)(i) shall instead be forfeited by the Limited Partner that transferred such Class B Partnership Interests.

(iii) LLC Initial Managing Principal Breach of Restrictive Covenants . Subject to Section 10.2(b)(ii) , in the event that an LLC Initial Managing Principal breaches the representation and warranties set forth in the Invitation to Subscribe (including the provisions set forth in Section 5.07 of the LLC Operating Agreement) during the term of his employment with the Partnership Group or during the three (3) year period following such term of employment, in addition to any forfeiture that may result from the application of Section 10.2(a)(iii) (should such breach result in a termination of employment), unless the Board of Directors of the General Partner, in its sole discretion, determines otherwise, such LLC Initial Managing Principal and each of his Permitted Transferees shall each forfeit one hundred percent (100%) of unvested Class B Partnership Interests, and the excess of (A) fifty percent (50%) of the number of vested Class B Partnership Interests held by such Limited Partner as of the earlier of (i) the date of such breach and (ii) the date of termination of such LLC Initial Managing Principal’s employment with the Partnership Group over (B) the aggregate number of vested Class B Partnership Interests (if any) previously forfeited by such Limited Partner under this Section 10.2(b)(iii) .

(iv) Limited Partner Breach of Restrictive Covenants . Subject to Section 10.2(b)(ii) , in the event that a Limited Partner other than an LLC Initial Managing Principal breaches the representation and warranties set forth in the Invitation to Subscribe (including the provisions set forth in Section 5.07 of the LLC Operating Agreement) during the term of his or her employment or during the eighteen (18) month period following such term of employment, in addition to any forfeiture that may result from the application of Section 10.2(a)(iii) (should such breach result in a termination of employment), unless the Board of Directors of the General Partner, in its sole discretion, determines otherwise, such Limited Partner and each of his or her Permitted Transferees shall each forfeit one hundred percent (100%) of unvested Class B Partnership Interests, and the excess of (A) 25% of the number of vested Class B Partnership Interests held by such Limited Partner as of the earlier of (i) the date of such breach and (ii) the date of termination of such Limited Partner’s employment with the Partnership Group over (B) the aggregate number of vested

Class B Partnership Interests (if any) previously forfeited by such Limited Partner under this Section 10.2(b)(iv) .

ARTICLE XI

ADMISSION OF PARTNERS

11.1 Substituted Limited Partners .

(e) No Limited Partner shall have the right to substitute in his place a purchaser, assignee, transferee, donee, heir, legatee, distributee, or other recipient of interests of such Limited Partner (other than in compliance with the provisions of Section 11.1(b) hereof), provided that any purchaser, assignee, transferee, donee, heir, legatee, distributee or other recipient of interests shall be admitted to the Partnership as a substitute Limited Partner with, and only with, the consent of the General Partner, which consent may be granted or withheld in the sole discretion of the General Partner. Any such consent by the General Partner shall be binding and conclusive without the consent of the Limited Partners.

(f) No Person shall become a substitute Limited Partner until such Person shall have satisfied the following requirements: (i) such Person shall, by written instrument in form and substance reasonably satisfactory to the General Partner, make representations and warranties to each nontransferring Limited Partner (x) with respect to the capacity, power and authority of the transferee to accept and adopt the terms and provisions of this Agreement, (y) that the execution, delivery and performance of this Agreement by the transferee does not require any consent or approval and does not violate any agreement to which the transferee is a party, and (z) that are otherwise determined by the General Partner as necessary or desired by the Partnership in order to comply with securities Laws, and (ii) such Person accepts and adopts the terms and provisions of this Agreement and the Acceptance Form submitted in connection with such Person’s acceptance of the Invitation to Subscribe.

(g) For the purpose of allocating Partnership Income and Partnership Losses, a Person with respect to whom the General Partner has given consent as provided in Section 11.1(a) hereof shall be treated as having become, and shall appear in the records of the Partnership as, a Limited Partner on the date of the Transfer to such Person.

11.2 New Limited Partners and Issuance of Partnership Interests . Subject to the terms of this Agreement, the General Partner may issue Class B Partnership Interests upon its admission of one (1) or more additional Limited Partners or issue additional Class B Partnership Interests to an existing Limited Partner at any time, in each case in exchange for an equal number of Class B Units contributed by such Person to the Partnership. A contribution of Class B Units for Class B Partnership Interests is not revocable or modifiable, except with the written consent of Pzena, Inc. and the Limited Partner, except in accordance with Section 12.6 hereof. No existing Limited Partner shall be entitled to be compensated or reimbursed on account of any dilution resulting from the admission of additional Limited Partners, nor will any Limited Partner be entitled to rights of first refusal, pre-emptive rights or any other rights or benefits as a result of the issuance of additional Class B Partnership Interests to any existing Limited Partners or the admission of a Limited Partner. The General Partner may do all things appropriate or convenient in connection with the

issuance of Class B Interests or the admission of any additional Limited Partner pursuant to the Invitation to Subscribe.

11.3 Representations of New Limited Partners . Each Person admitted to the Partnership as a Limited Partner shall become a party to, and agree to be bound by, this Agreement and the Acceptance Form submitted in connection with such Partner’s acceptance of the Invitation to Subscribe. Each Limited Partner represents and warrants that (a) the Limited Partner owns the Class B Units to be contributed to the Partnership pursuant to the Invitation to Subscribe and Section 11.2 hereto, free and clear of all Liens, except as permitted with the prior written consent of the General Partner, (b) the Limited Partner’s interest in the Partnership is intended to be and is being acquired solely for the Limited Partner’s own account for the purpose of investment and not with a view to any sale or other disposition of all or any part thereof (provided the disposition of the Partner’s property shall be within its control), (c) the Limited Partner is aware that interests in the Partnership have not been registered under the Securities Act, that such interests cannot be sold or otherwise disposed of unless they are registered thereunder or unless an exemption from such registration is available, that the Partnership has no present intention of so registering such interests under the Securities Act, and that accordingly such Limited Partner is able and is prepared to bear the economic risk of making a Capital Contribution and to suffer a complete loss of investment, and (d) the Limited Partner’s knowledge and experience in financial and business matters are such that the Limited Partner is capable of evaluating the risks of making a Capital Contribution. The foregoing representations and warranties may be relied upon by the Partnership, and by the other Partners, in connection with each Limited Partner’s investment in the Partnership.

ARTICLE XII

WITHDRAWAL OR REMOVAL OF PARTNERS

12.1 Withdrawal of General Partner . The General Partner shall not withdraw as the Partnership’s general partner unless otherwise provided herein.

12.2 Removal of General Partner . The Limited Partners shall not have any right to remove the General Partner as the Partnership’s general partner.

12.3 Withdrawal of Limited Partners . No Limited Partner shall have any right to withdraw from the Partnership without the prior written consent of the General Partner, provided that at such time as a Limited Partner no longer owns any Class B Partnership Interests, such Limited Partner shall cease to be a Partner of the Partnership. The General Partner may permit withdrawal of a Limited Partner only in connection with the redemption of some or all of such Limited Partner’s Class B Partnership Interests for an equal number of Class B Units and Class B Shares in accordance with Section 12.5 hereof. The resignation or cessation of partnership of a Limited Partner shall not dissolve the Partnership.

12.4 Removal of Limited Partners . A Limited Partner may be removed (a) upon the Limited Partner’s death or entry by a court of competent jurisdiction of an order adjudicating the Limited Partner incompetent to manage the Limited Partner’s Person or property, (b) at the sole discretion of the General Partner, (c) upon cessation of the Limited Partner’s employment with Pzena Investment Management, LLC or (d) if the General Partner determines that such removal is necessary or desirable to comply with any

requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any United States federal or state agency or judicial authority or contained in any United States federal or state statute. The General Partner shall provide written notice of removal to any Limited Partner that it proposes to remove pursuant to this Section 12.4 , and if applicable shall provide such Limited Partner an opportunity to cure the event giving rise to removal. Upon removal of a Limited Partner, such Limited Partner, or the Limited Partner’s successor in interest, shall in the sole discretion of the General Partner, (A) receive a distribution of (x) Class B Units equal in number to and with the identical vesting and exchange rights of the Class B Partnership Interests held by such Limited Partner and (y) Class B Shares equal in number to the Class B Partnership Interests held by such Limited Partner; or (B) be paid an amount equal to the fair market value, as reasonably determined by the General Partner, of the Limited Partner’s Capital Account as of either the date of such removal or the end of the fiscal year in which the removal is effective, in the discretion of the General Partner. Such payment shall be made without interest within 90 days following such date. Class B Partnership Interests redeemed upon removal of a Limited Partner shall be cancelled.

12.5 Redemption of Partnership Interests. A Limited Partner may redeem some or all of such Limited Partner’s Class B Partnership Interests in an Exit Exchange or on terms and conditions determined by the General Partner in its sole discretion. Class B Partnership Interests redeemed in exchange for Class B Units shall be cancelled. Such redemption of Class B Partnership Interests in exchange for Class B Units shall be permitted by the General Partner:

(a) upon the submission by the Limited Partner to the General Partner of a request to make an Exit Exchange following notification to such Limited Partner pursuant to Section 12.6 hereof of the Exchange Notice and Exchange Date established pursuant to Exhibit B of the LLC Operating Agreement; or

(b) on such other terms and conditions as may be determined by the General Partner in its sole discretion.

12.6 Exchange Procedures in Connection with an Exchange Notice . Upon receiving an Exchange Notice from the Managing Member pursuant to Section 2.01(b) of Exhibit B of the LLC Operating Agreement, the General Partner shall notify each Limited Partner of such Limited Partner’s eligibility to redeem certain of the Limited Partner’s vested Class B Partnership Interests for an equal number of Class B Units and Class B Shares solely for the purposes of exchanging such Class B Units and Class B Shares for Class A Shares in accordance with the procedures and limitations set forth in Exhibit B of the LLC Operating Agreement. Upon receiving notification of the Exchange Notice, a Limited Partner may submit a request to redeem one or more Class B Partnership Interests, subject to limits specified in the Register, Invitation to Subscribe, or as applicable under Exhibit B of the LLC Operating Agreement, by delivering to the General Partner, not less than fourteen (14) calendar days prior to an Exchange Date (or such lesser number of days as the General Partner may permit in its sole discretion), a written notice (the “ Exit Exchange Request ”). An Exit Exchange Request shall set forth the number of Class B Partnership Interests such Limited Partner elects to redeem in exchange for Class B Units and Class B Shares. The Limited Partner shall represent to the General Partner that such Limited Partner (a) owns the Class B Partnership Interests to be redeemed pursuant to Section 12.5 , free and clear of all Liens, except as set forth therein, and, if there are any Liens identified in the Exit Exchange Request, such Limited Partner shall covenant that such Limited Partner will deliver evidence reasonably

satisfactory to the General Partner that all such Liens have been released and (b) is eligible to exchange the Class B Units and Class B Shares for Class A Shares as of the current Exchange Date. An Exit Exchange Request is not revocable or modifiable, except with the written consent of the General Partner.

ARTICLE XIII

DISSOLUTION AND LIQUIDATION

13.1 Dissolution . The Partnership shall dissolve upon the first to occur of the following:

(a) a determination by the General Partner that the Partnership should dissolve; or

(b) the entry of a decree of judicial dissolution of the Partnership under Section 17-802 of the Delaware Act.

Upon the dissolution of the Partnership, no further business shall be done in the Partnership’s name except the completion of any incomplete transactions and the taking of such action as shall be necessary for the winding up of the affairs of the Partnership and the distribution of its assets.

13.2 Liquidation .

(a) Upon dissolution of the Partnership, the General Partner shall (x) determine each Partner’s Capital Account pursuant to Article III hereof, (y) determine each Partner’s pro rata share of Partnership Income and Partnership Loss in accordance with Section 4.6 hereof, and (z) take the following actions and make the following distributions out of the property of the Partnership in the following manner and order:

(v) pay all debts and liabilities of the Partnership and expenses of liquidation in the order of priority provided by Law; and

(vi) (x) distribute the remainder of the property in cash to the Partners in accordance with the aggregate positive Capital Account balance of each Partner, taking into account all allocations of Partnership Income and Partnership Loss, and all distributions of Partnership assets, for the Fiscal Year of the liquidation and for all prior periods or (y) make a distribution in kind of Class B Units in an equal number and with the identical vesting and exchange rights to that of the Class B Partnership Interests held by such Limited Partner; in either event, as shall be determined by the General Partner.

(b) No Partner shall be obligated to restore a negative Capital Account unless otherwise determined by the General Partner.

13.3 Distribution in Kind . The provisions of Section 13.2 which require the liquidation of the assets of the Partnership notwithstanding, but subject to the order of priorities set forth therein, if upon dissolution of the Partnership the General Partner determines that an immediate sale of part or all of the Partnership’s assets would be impractical or would cause undue loss to the Partners, the General Partner may, in its discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy Partnership liabilities, and may, in its discretion, distribute to the Partners, in lieu of cash, as tenants

in common and in accordance with the provisions of this Agreement, undivided interests in such Partnership assets as the General Partner deems not suitable for liquidation. Any such distributions in kind shall be subject to such conditions relating to the disposition and management of such properties as the General Partner deems reasonable and equitable and to any agreements governing the operating of such properties at such time

13.4 Cancellation of Certificate of Limited Partnership . Upon the completion of the distribution of Partnership property as provided above, the Partnership shall be terminated, and the General Partner (or the Limited Partners, if necessary) shall cause the cancellation of the Certificate of Limited Partnership and all qualifications of the Partnership as a foreign limited partnership in jurisdictions other than the State of Delaware, if applicable.

ARTICLE XIV

GENERAL PROVISIONS

14.1 Power of Attorney .

(c) Each of the Limited Partners hereby constitutes and appoints the General Partner his true and lawful representative and attorney-in-fact in his name, place and stead, with full power of substitution, to make, execute, sign, acknowledge and file with respect to the Partnership:

(i) all instruments which the General Partner deems appropriate to reflect any duly adopted amendment, change or modification of the Partnership’s Certificate of Limited Partnership or this Agreement in accordance with the terms of this Agreement;

(ii) any amendment to this Agreement and all such other instruments, documents and certificates, which may from time to time be required by the laws of the State of Delaware, the United States of America (including tax laws and regulations), or any other jurisdiction in which the Partnership shall determine to do business, or any political subdivision or agency thereof, to effectuate, implement, continue and defend the valid and subsisting existence of the Partnership as a partnership;

(iii) all applications, certificates, certifications, reports or similar instruments or documents required to be submitted by or on behalf of the Partnership to any Governmental or Regulatory Authority or to any securities or commodities exchange, board of trade, clearing corporation or association or similar institution or to any other self-regulatory organization or trade association; and

(iv) all papers which may be deemed necessary or desirable by the General Partner to effect the dissolution and liquidation of the Partnership if approved in accordance with the terms of this Agreement;

provided, that that no such representative and attorney-in-fact shall have any right, power or authority to amend or modify this Agreement when acting in such capacity. The foregoing power of attorney is irrevocable and coupled with an interest, and shall survive the death, incompetency, disability, incapacity, dissolution, bankruptcy, insolvency or termination of any Limited Partner and the transfer of all or any portion of the

Limited Partner’s Partnership Interest and shall extend to the Limited Partner’s heirs, successors, assigns and personal representatives.

14.2 Severability . If any term, provision, agreement, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, agreements, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not effected in any manner materially adverse to any party. Upon such a determination, the parties hereof shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

14.3 Notices . All notices to the Partnership shall be addressed to its principal office. All notices addressed to a Partner or his legal representative or to the Partners as a group shall be addressed to such Partner or legal representative or Partners at the address of such Partner or legal representative for the Partners set forth on the Register. Any Partner or the legal representative of any Partner may designate a new address by notice to such effect given to the Partnership. All notices and other communications to be given to a Partner or his legal representative shall be sufficiently given for all purposes hereunder (a) when received, if in writing and delivered by hand, (b) two (2) Business Days following deposit with a nationally recognized courier or overnight delivery service, (c) three (3) days after being mailed by certified or registered mail, return receipt requested, with appropriate postage prepaid, or (d) when sent, if sent in the form of an e-mail message or facsimile.

14.4 No Waiver . No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other subsequent breach or condition, whether of like or different nature.

14.5 Copy on File . Each Partner hereby agrees that one executed counterpart of this Agreement or set of executed counterparts shall be held at the principal office of the Partnership, that a Certificate of Limited Partnership and all amendments thereto shall be filed in the Office of the Secretary of State of Delaware and copies thereof shall be held at the principal office of the Partnership and that there shall be distributed to each Partner, upon the request of such Partner, a conformed copy of this Agreement, as amended from time to time.

14.6 Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

14.7 Binding Effect . Except as otherwise provided in this Agreement, every covenant, term, and provision of this Agreement shall be binding upon and inure to the benefit of the Partners and their respective heirs, personal representatives, successors, permitted transferees and permitted assigns.

14.8 Entire Agreement . This Agreement constitutes the full and entire understanding and agreement, whether written or oral, among the parties with regard to the subject matter of this Agreement and supersedes all prior agreements and understandings with respect to such subject matter.

14.9 Other Activities . Neither the Partnership nor any Partner (or any Affiliate of any Partner) shall have any right by virtue of this Agreement either to participate in or to share in any other now existing or future ventures, activities or opportunities of any of the other Partners or their Affiliates, or in the income or proceeds derived from such ventures, activities or opportunities.

14.10 Further Assurances . Each Partner agrees to execute and deliver any and all additional instruments and documents and do any and all acts and things as may be necessary or expedient to effectuate more fully this Agreement or any provisions hereof or to carry on the business contemplated hereunder.

14.11 Counterparts . This Agreement may be executed in one or more counterparts, including counterparts executed by additional Limited Partners admitted to the Partnership, and each of such counterparts shall, for all purposes, be deemed to be an original but all of such counterparts shall constitute one and the same instrument.

14.12 Table of Contents and Captions Not Part of Agreement . The table of contents and captions contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provisions hereof.

14.13 Arbitration . All disputes relating to, arising from, or connected in any manner with this Agreement shall be resolved exclusively through final and binding arbitration under the rules and auspices of JAMS pursuant to its Arbitration Rules & Procedures. The arbitration shall be held in the Borough of Manhattan, New York, New York. The arbitrator shall have jurisdiction to determine any claim, including the arbitrability of any claim, submitted to him/her. The arbitrator may grant any relief authorized by law for any properly established claim. The interpretation and enforceability of this Section 14.13 shall be governed and construed in accordance with the United States Federal Arbitration Act, 9 U.S.C. § 1, et seq. The parties acknowledge that the purpose and effect of this Section 14.13 is solely to elect private mediation and arbitration in lieu of any judicial proceeding either party might otherwise have available in the event of a dispute, controversy or claim between the parties. Therefore, the parties hereby waive the right to have any such dispute heard by a court or jury, as the case may be, and agrees that the exclusive procedure to redress any and all disputes, controversies and claims will be mediation and arbitration.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF , the undersigned have executed or caused to be executed on their behalf this Amended and Restated Agreement of Limited Partnership as of the date set forth below.



GENERAL PARTNER:		PZENA INVESTMENT MANAGEMENT, INC.

		By: /s/ Richard S. Pzena
		Name: Richard S. Pzena
		Title: Chief Executive Officer

[Signature Page to Amended and Restated Agreement of Limited Partnership of Pzena Investment Management, LP]




LIMITED PARTNER:		By: /s/ Limited Partners

[Signature Page to Amended and Restated Agreement of Limited Partnership of Pzena Investment Management, LP]

ANNEX A

INVITATION TO SUBSCRIBE

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

I, Richard S. Pzena, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pzena Investment Management, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Dated: May 6, 2016	/s/ RICHARD S. PZENA

	Name: Richard S. Pzena
	Title: Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

I, Gary J. Bachman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pzena Investment Management, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Dated: May 6, 2016	/s/ GARY J. BACHMAN

	Name: Gary J. Bachman
	Title: Chief Financial Officer (Principal Financial and Accounting Officer)

Certification of Chief Executive Officer pursuant to

18 U.S.C. Section 1350,

as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Pzena Investment Management, Inc. (the “Company”) for the quarter ended March 31, 2016, as filed with the Securities and Exchange Commission (the “Report”), Richard S. Pzena, as Chief Executive Officer of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Dated: May 6, 2016	/s/ RICHARD S. PZENA

	Name: Richard S. Pzena
	Title: Chief Executive Officer

Certification of Chief Financial Officer pursuant to

18 U.S.C. Section 1350,

as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Pzena Investment Management, Inc. (the “Company”) for the quarter ended March 31, 2016, as filed with the Securities and Exchange Commission (the “Report”), Gary J. Bachman, as Chief Financial Officer of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Dated: May 6, 2016	/s/ GARY J. BACHMAN

	Name: Gary J. Bachman
	Title: Chief Financial Officer (Principal Financial and Accounting Officer)