ACGP 10-K Fiscal year ended Dec. 31, 2017

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

Or

☐ 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 001-37387

Associated Capital Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware		47-3965991
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One Corporate Center, Rye, NY		10580-1422
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (203) 629-9595

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☐ No ☒ .

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes ☐ No ☒ .

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 ☒ No ☐ .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ☐ .

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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. (Check one):

	Large accelerated filer ☐	Accelerated filer ☒
	Non-accelerated filer ☐ (Do  not check if a smaller reporting company)	Smaller reporting company ☐
		Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The aggregate market value of the class A common stock held by non-affiliates of the registrant as of June 30, 2017 (the last business day of the registrant’s most recently completed second fiscal quarter) was $159,849,334.

As of March 1, 2018, 4,447,408 shares of class A common stock and 19,187,885 shares of class B common stock were outstanding. 18,423,741 shares of class B common stock were held by a subsidiary of GGCP, Inc. and 532,766 shares of class B common stock were held by executive officers and directors of GGCP, Inc.

DOCUMENTS INCORPORATED BY REFERENCE:  Portions of the registrant’s definitive proxy statement relating to the 2018 Annual Meeting of Shareholders are incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this report.

Part I
	Item 1	Business	4
		Business Strategy	8
		Competition	9
		Intellectual Property	10
		Regulation	10
		Employees	14
	Item 1A	Risk Factors	14
	Item 1B	Unresolved Staff Comments	29
	Item 2	Properties	29
	Item 3	Legal Proceedings	29
	Item 4	Mine Safety Disclosures	29
Part II
	Item 5	Market For The Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities	29
	Item 6	Selected Financial Data	31
	Item 7	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	33
	Item 7A	Quantitative And Qualitative Disclosures About Market Risk	45
	Item 8	Financial Statements And Supplementary Data	49
	Item 9	Changes In And Disagreements With Accountants On Accounting And Financial Disclosure	88
	Item 9A	Controls And Procedures	88
	Item 9B	Other Information	89
Part III
	Item 10	Directors, Executive Officers and Corporate Governance	89
	Item 11	Executive Compensation	89
	Item 12	Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters	89
	Item 13	Certain Relationships And Related Transactions, and Director Independence	89
	Item 14	Principal Accountant Fees And Services	89
Part IV
	Item 15	Exhibits, Financial Statement Schedules	90
	Item 16	Form 10-K Summary	92
		Signatures	93
		Power of Attorney	94
		Subsidiaries of Associated Capital Group, Inc.
	Certifications	Exhibit 31.1
		Exhibit 31.2
		Exhibit 32.1
		Exhibit 32.2

PART I

Forward-Looking Statements

Our disclosure and analysis in this report and in documents that are incorporated by reference contain some forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements because they do not relate strictly to historical or current facts. You should not place undue reliance on these statements. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results.

Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe. Some of the factors that could cause our actual results to differ from our expectations or beliefs include, without limitation: the adverse effect from a decline in the securities markets; a decline in the performance of our products; a general downturn in the economy; changes in government policy or regulation; changes in our ability to attract or retain key employees; and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations. We also direct your attention to any more specific discussions of risk contained in Item 1A below and in our other public filings or in documents incorporated by reference here or in prior filings or reports.

We are providing these statements as permitted by the Private Litigation Reform Act of 1995. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations or if we receive any additional information relating to the subject matters of our forward-looking statements.

ITEM 1:

BUSINESS

Unless we have indicated otherwise, or the context otherwise requires, references in this report to “Associated Capital Group, Inc.,” “AC Group,” “the Company,” “AC,” “we,” “us” and “our” or similar terms are to Associated Capital Group, Inc., its predecessors and its subsidiaries.

Our principal executive offices are located at One Corporate Center, Rye, New York 10580. We post or provide a link on our website, www.associated-capital-group.com , to the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (“Commission” or “SEC”): our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings on our website are available free of charge.

The Spin-off and Related Transactions

We are a Delaware corporation that provides alternative investment management, institutional research and underwriting services. In addition, we derive investment income/(loss) from proprietary trading of cash and other assets awaiting deployment in our operating businesses.

On November 30, 2015, GAMCO Investors, Inc. (“GAMCO” or “GBL”) distributed all the outstanding shares of each class of AC common stock on a pro rata one-for-one basis to the holders of each class of GAMCO’s common stock (the “Spin-off”).

We conduct our investment management business through Gabelli & Company Investment Advisers, Inc. (“GCIA” f/k/a Gabelli Securities, Inc.). GCIA and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli & Partners”), collectively serve as general partners or investment managers to investment funds including limited partnerships and offshore companies (collectively, “Investment Partnerships”), and separate accounts. We primarily manage assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios. The business earns management and incentive fees from its advisory assets. Management fees are largely based on a percentage of assets under management. Incentive fees are based on the percentage of the investment returns of certain clients’ portfolios. GCIA is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).

We provide our institutional research services operations through G.research, LLC (“G.research”) doing business as “Gabelli & Company”, an indirect wholly-owned subsidiary of the Company. G.research is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Through G.research, we provide institutional research services as well as act as an underwriter primarily for affiliates of the Company. G.research is regulated by the Financial Industry Regulatory Authority (“FINRA”). G.research’s revenues are derived primarily from institutional research services. As of December 31, 2016, G.research was a wholly-owned subsidiary of GCIA. However, on January 23, 2017 all of the outstanding membership interests of G.research were transferred to Institutional Services Holdings, LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of AC.

In connection with the spin-off, GAMCO issued a promissory note (the “GAMCO Note”) to AC Group in the original principal amount of $250 million used to partially capitalize the Company. The GAMCO Note bears interest at 4% per annum and has a maturity date of November 30, 2020 with respect to its original principal amount. Interest on the GAMCO Note will accrue from the most recent date for which interest has been paid. Prior to November 30, 2019, at the election of GAMCO, payment of interest on the GAMCO Note may, in lieu of being paid in cash, be paid, in whole or in part, in kind (a “PIK Amount”). GAMCO will repay all PIK Amounts added to the outstanding principal amount of the GAMCO Note, in cash, on the fifth anniversary of the date on which each such PIK Amount was added to the outstanding principal amount of the GAMCO Note. GAMCO may prepay the GAMCO Note prior to maturity without penalty.

Through December 31, 2017, AC received principal repayments totaling $200 million on the GAMCO Note. The $50 million principal amount outstanding as of December 31, 2017 is due on November 30, 2020.

In addition, AC Group owns 4,393,055 shares of GAMCO Class A common stock via transactions that occurred in connection with the spin-off.

Alternative Investment Management

We primarily manage assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios. The business earns fees from its advisory clients, and income/(loss) from trading and investment portfolio activities. The advisory fees include management and incentive fees. Management fees are largely based on a percentage of the portfolios’ levels of assets under management (“AUM”). Incentive fees are based on the percentage of profits derived from the investment performance. As of December 31, 2017, we managed a total of $1.5 billion in assets.

In our event-driven value funds, we seek investments trading at prices that differ from those determined using our proprietary “Private Market Value (PMV) with a Catalyst” methodology where we have identified a near-term catalyst to narrow the market difference to PMV. Catalysts can include a spin-off, stock buyback, asset sale, management change, regulatory change or accounting change.

In event merger arbitrage, the goal is to earn absolute returns (positive returns) regardless of the direction of the market. We have compounded returns at a 7.56% net CAGR since we launched our first partnership dedicated to investing in merger arbitrage situations. That is, $10 million invested in this fund in 1985 would today be worth more than $110 million. In addition, the value of such an investment would have exhibited significantly less volatility than that of broad equity indices.

The investment process begins with the announcement of an acquisition, where an acquirer makes an offer for all of the target company’s stock. The target’s shares usually trade at a discount, or spread, to the final deal price because of the time value of money, regulatory approval risks and other risks specific to the companies in the transaction.

Our role as arbitrageurs is to quantify and assess the risks to the transaction, and make investments that compensate our investors for these risks and earn a satisfactory return.

Our typical investment process involves buying shares of the target at a discount, earning the spread to the deal price when the deal closes, and reinvesting the profits in new deals in a similar manner. By owning a diversified portfolio of deals, we mitigate the adverse impact of deal-specific risks.

We expect rising interest rates will boost returns in merger arbitrage in the form of wider spreads, given the time value of money component of the deal spread. As a result, merger arbitrage offers a good alternative to fixed income portfolios and should benefit from a rising rate environment. We look forward to our next 30 years investing in merger arbitrage situations.

While merger arbitrage returns have historically been non-market correlated and deal-specific, event-driven value returns are more correlated to broader equity markets.

We generally manage assets on a discretionary basis and invest in a variety of U.S. and foreign securities utilizing a bottom up value investment style. Our managed funds primarily employ absolute return strategies with the objective of generating positive returns regardless of market performance.

We introduced our first alternative fund, a merger arbitrage partnership, Gabelli Arbitrage (renamed Gabelli Associates), in February 1985. An offshore version of the event merger arbitrage strategy was added in 1989. Building on our strengths in global event-driven value investing, several new Investment Partnerships have been added to balance investors’ geographic, strategy and sector needs. Today, we offer Investment Partnerships in multiple categories, including event merger arbitrage, event-driven value and others across a broad range of absolute return products. Within our event merger arbitrage strategy, as of December 31, 2017, we managed, either directly or indirectly, approximately $1.4 billion of assets for investors who seek positive returns not correlated to fluctuations of the general market. These funds seek to drive returns by investing mostly in announced merger and acquisition transactions that are primarily dependent on deal closure and less on the overall market environment. In event-driven value, as of December 31, 2017, we managed $91 million of assets focused on global markets. We also manage $66 million of assets in other Investment Partnerships designed to offer diversification by global economic and sectoral opportunities. These include sector, high yield, capital structure and venture capital or merchant banking portfolios. Since inception, we have been closely identified with, and have enhanced, the “value” style of investing consistent with our fundamental objective of providing an absolute return for our clients. Our investment objective is to earn a superior risk-adjusted return over the long-term through our proprietary fundamental research. We serve a wide variety of investors including private wealth management accounts, corporations, corporate pension and profit-sharing plans, foundations and endowments, as well as serving as sub-advisor to certain third-party investment funds.

Assets Under Management

The following table sets forth AC’s total AUM for the dates shown.

Assets Under Management (a)

		Year Ended December 31,
		2017				2016				2015				2014				2013
Event Merger Arb		$	1,384			$	1,076			$	869			$	796			$	691
Event-Driven Value (b)			91				133				145				167				140
Other (c)			66				63				66				77				76
Total AUM		$	1,541			$	1,272			$	1,080			$	1,040			$	907

(a)

Includes separately managed accounts and Investment Partnerships.

(b)

Excluding event merger arbitrage .

(c)

Includes investment vehicles focused on private equity, merchant banking, non-investment-grade credit and capital structure arbitrage.

Institutional Research Services

Through G.research, doing business as “Gabelli & Company”, we provide institutional research services and act as an underwriter. G.research is regulated by FINRA. G.research’s revenues are derived primarily from institutional research services, underwriting fees and selling concessions. Our research analysts are industry-focused, following sectors based on our core competencies. They research companies across market capitalizations on a global basis. The primary function of the research team is to gather data, array the data, and then project and interpret data from which investment decisions can be made. Analysts publish their insights in the form of research reports and daily notes. In addition, G.research hosts conferences which bring together industry leaders and institutional investors. The objective of institutional research services is to provide superior investment ideas to investment decision makers. A significant portion of our institutional research services and underwriting revenues are from GAMCO and its affiliates. We can provide no assurance that GAMCO and its affiliates will continue to use our institutional research and underwriting services to the same extent in the future.

Analysts are generally assigned to research platforms, overseen by a senior analyst, whose role is to ensure a consistent process, enhance idea cross-fertilization and knowledge-sharing. Our research platforms include Digital, which includes cable, telecommunications, broadcasting, publishing, advertising, entertainment and technology; Utilities and Energy; Consumer, Health and Wellness; Aerospace and Capital Goods; Natural Resources; and Financial Services.

G.research generates institutional research services revenues via hard dollar payments or through securities transactions executed on an agency basis on behalf of clients. Clients include institutional investors (e.g., hedge funds and asset managers) as well as affiliated mutual funds and managed accounts. Institutional research services revenues totaled $12.2 million, $12.6 million, and $9.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. Pursuant to research services agreements, GAMCO Asset Management Inc. paid $2.2 million, $1.5 million and $0.7 million and Gabelli Funds, LLC paid $2.3 million, $1.5 million and $0.8 million to the Company for the years ended December 31, 2017, 2016 and 2015, respectively. Gabelli Funds, LLC and GAMCO Asset Management Inc. are both wholly-owned subsidiaries of GAMCO. G.research earned $4.5 million, $5.2 million and $4.9 million, or approximately 60%, 63% and 59%, of its commission revenue from transactions executed on behalf of funds advised by Gabelli Funds, LLC, and clients advised by GAMCO Asset Management Inc. for the years ended December 31, 2017, 2016 and 2015, respectively. G.research continues to pursue expansion of third party and affiliated activities.

Proprietary Trading

We received a substantial portfolio of cash and investments held by GAMCO prior to the spin-off. We expect to use this proprietary investment portfolio to provide seed capital for new products, expand our geographic presence, develop new markets and pursue strategic acquisitions, alliances and lift-outs, as well as for shareholder compensation in the form of share repurchases and dividends. Our proprietary portfolios are largely invested in products we manage or that are managed by GAMCO.

Business Strategy

Our business strategy targets global growth of the business through continued leveraging of our proven asset management strengths including the long-term performance record of our alternative investment funds, diverse product offerings and experienced investment, research and client relationship professionals. In order to achieve performance and growth in AUM and profitability, we are pursuing a strategy which includes the following key elements:

Continuing an Active Fundamental Investment Approach

We began managing hedge fund assets in 1985, when we launched our first merger arbitrage fund. Our results through market cycles clearly demonstrate our core competence in event driven investing. Our “Private Market Value (PMV) with a Catalyst™” investing remains the principal management philosophy guiding our investment operations. This method is based on investing principles articulated by Graham & Dodd, and further augmented by our founder Mario J. Gabelli.

Growing our Investment Partnerships Advisory Business

We intend to grow our Investment Partnerships advisory business by gaining share with existing products and introducing new products within our core competencies, such as event and merger arbitrage. In addition, we intend to grow internationally.

Capitalizing on Acquisitions, Alliances and Lift-outs

We intend to leverage our research and investment capabilities by pursuing acquisitions, alliances and lift-outs that will broaden our product offerings and add new sources of distribution.

Pursuing Partnerships and Joint Ventures

We plan to pursue partnerships and joint ventures with firms that fit with AC’s product quality and that can provide Asian/European distribution capabilities that would complement our U.S. equity product expertise. We expect to target opportunities for investors interested in non-market correlated returns.

Growing our Institutional Research Services Operations

We intend to grow our Institutional Research Services by growing our client base and by increasing our interactions with existing clients to generate greater trading activity and payment flow.

Continuing Our Sponsorship of Industry Conferences

G.research sponsors industry conferences and management events throughout the year. At these conferences, senior management from leading companies share their thoughts on the industry, competition, regulation and the challenges and opportunities in their businesses with portfolio managers and securities analysts. These meetings are an important component of the research services provided to institutional clients. In 2017, G.research hosted meetings covering the following sectors:

Pump, Valve, & Water Systems

Waste & Environmental Services

Specialty Chemicals

Omaha Research Trip

Movie & Entertainment

Television & Broadcasting

Aircraft Supplier & Connectivity

Automotive Aftermarket

We also have a tradition of sponsoring institutional investor symposia that bring together prominent portfolio managers, members of academia and other leading business professionals to present, discuss and debate current issues and topics in the investment industry. These symposia have included:

	2017:	“Digital Evolution within Financial Services”
	2015:	“Capital Allocation – The Tug of War”
	2013:	“Value Investing 20 Years Later: A Celebration of the Roger Murray Lecture Series”
	2006:	“Closed-End Funds: Premiums vs. Discounts, Dividends and Distributions”
	2003:	“Dividends, Taxable versus Non-Taxable Issues”
	2001:	“Virtues of Value Investing”
	1998:	“The Role of Hedge Funds as a Way of Generating Absolute Returns”
	1997:	“Active vs. Passive Stock Selection”

Attracting and Retaining Experienced Professionals

Our ability to attract and retain highly experienced investment and other professionals with a long-term commitment to the Company and our clients is a significant factor in our long-term growth. We offer significant variable compensation that provides incentives to our staff. We expect to increase the scope of our investment management capabilities, add portfolio managers and other investment personnel, and expand our product offerings.

Competition

The alternative asset management industry is intensively competitive. We face competition in all aspects of our business from other managers in the United States and globally. We compete with alternative investment management firms, insurance companies, banks, brokerage firms and financial institutions that offer products that have similar features and investment objectives. Many of these investment management firms are subsidiaries of large diversified financial companies and may have access to greater resources not available to us. Many are larger in terms of AUM and revenues and, accordingly, have larger sales organizations and marketing budgets. Historically, we have competed primarily on the basis of the long-term investment performance of our investment products. However, we have recently taken steps to increase our distribution channels, brand awareness and marketing efforts.

The market for providing investment management services to institutional and private wealth management clients is also highly competitive. Selection of investment advisors by U.S. institutional investors is often subject to a screening process and to favorable recommendations by investment industry consultants. Many of these investors require their investment advisors to have a successful and sustained performance record, often five years or longer, with focus also on one-year and three-year performance records. We have significantly increased our AUM on behalf of U.S. institutional investors since our entry into the institutional asset management business. At the current time, we believe that our investment performance record would be attractive to potential new institutional and private wealth management clients. However, no assurance can be given that our efforts to obtain new business will be successful.

Intellectual Property

Service marks and brand name recognition are important to our business. We have rights to the service marks under which our products are offered. We have rights to use the “Gabelli” name, and the “GAMCO” brand, pursuant to a Service Mark and Name License Agreement, a non-exclusive, royalty-free perpetual license agreement we have entered into with GAMCO (the “Service Mark and Name License Agreement”). We can use these names with respect to our funds, collective investment vehicles, Investment Partnerships and other investment products pursuant to the Service Mark and Name License Agreement. The Service Mark and Name License Agreement has a perpetual term, subject to termination only in the event we are not in compliance with the quality control provisions in the Service Mark and Name License Agreement. Pursuant to an assignment agreement signed in 1999, Mario J. Gabelli had assigned to GAMCO all of his rights, title and interests in and to the “Gabelli” name for use in connection with investment management services and institutional research services. In addition, the funds managed by Mario J. Gabelli outside GAMCO and AC have entered into a license agreement with GAMCO permitting them to continue limited use of the “Gabelli” name under specified circumstances.

Regulation

Virtually all aspects of our businesses are subject to federal, state and foreign laws and regulations. These laws and regulations are primarily intended to protect investment advisory clients and investors, the markets and customers of broker-dealers. Under such laws and regulations, agencies that regulate investment advisors and broker-dealers have broad powers, including the power to limit, restrict or prohibit such an advisor or broker-dealer from carrying on its business in the event that it fails to comply with such laws and regulations. In such an event, the possible sanctions that may be imposed include civil and criminal liability, the suspension of individual employees, injunctions, limitations on engaging in certain lines of business for specified periods of time, revocation of the investment advisor and other registrations, censures and fines.

Global Regulatory Reform

We are subject to numerous regulatory reform initiatives in countries where we do business. Any initiative, or new laws or regulations or changes in enforcement of existing laws or regulations, could materially and adversely impact the scope or profitability of AC’s business activities, lead to business disruptions, require AC to change certain business practices and expose AC to additional costs (including compliance and legal costs), as well as reputational harm. AC’s profitability also could be materially and adversely affected by modification of the rules and regulations that impact the business and financial communities in general, including changes to the laws governing taxation, antitrust regulation and electronic commerce.

Dodd-Frank Wall Street Reform and Consumer Protection Act. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “DFA”) was signed into law in the United States. The DFA is expansive in scope and led to the adoption of extensive regulations. As the impact of these rules becomes evident over time, it is not yet possible to predict the ultimate effects that the DFA, or subsequent regulations and decisions, will have upon AC’s business, financial condition and results of operations.

Securities and Exchange Commission Review of Asset Managers. Our business may also be impacted by the SEC regulatory initiatives. For example, on December 11, 2014 the Chair of the SEC announced that she is recommending that the SEC enhance its oversight of asset managers by (i) expanding and updating data requirements with which asset managers must comply, (ii) improving fund level controls, including those related to liquidity levels and the nature of specific instruments and (iii) ensuring that asset management firms have appropriate transition plans in place to deal with market stress events or situations where an investment adviser is no longer able to serve its clients. Although these recommendations have not yet resulted in any proposed rules, any additional SEC oversight or the introduction of any new reporting, disclosure or control requirements could expose us to additional compliance costs and may require us to change how we operate our business.

Taxation. Our global business may be impacted by the Foreign Account Tax Compliance Act (“FATCA”), which was enacted in 2010 and introduced expansive new investor onboarding, withholding and reporting rules aimed at ensuring U.S. persons with financial assets outside of the United States pay appropriate taxes. In many instances, however, the precise nature of what needs to be implemented will be governed by bilateral Intergovernmental Agreements (“IGAs”) between the United States and the countries in which we do business or have accounts. While many of these IGAs have been put into place, others have yet to be concluded. The Organization for Economic Cooperation and Development (“OECD”) has developed the Common Reporting Standard (“CRS”) to address the issue of offshore tax evasion on a global basis. Aimed at maximizing efficiency and reducing cost for financial institutions, the CRS provides a common standard for due diligence, reporting and exchange of financial account’s information. Pursuant to the CRS, participating jurisdictions will obtain from reporting financial institutions, and automatically exchange with partner jurisdictions on an annual basis, financial information with respect to all reportable accounts identified by financial institutions on the basis of common due diligence and reporting procedures. The first information exchanges began in 2017 on the basis of the information reported with respect to 2016. As a result, the Investment Partnerships will be required to report information on the investors of the Partnerships to comply with the CRS due diligence and reporting requirements, as adopted by the countries in which the Investment Partnerships are organized.

The FATCA and CRS rules will impact both U.S. and non-U.S. Investment Partnerships and separately managed accounts and subject us to extensive additional administrative burdens. Our business could also be impacted to the extent there are other changes to tax laws such as the recent tax reform legislation. Such changes could adversely affect our financial results.

Existing U.S. Regulation Overview

AC and certain of its U.S. subsidiaries are currently subject to extensive regulation, primarily at the federal level, by the SEC, the Department of Labor, FINRA and other regulatory bodies. Certain of our U.S. subsidiaries are also subject to anti-terrorist financing, privacy, anti-money laundering regulations and economic sanctions laws and regulations established by these agencies.

The Advisers Act

GCIA is registered with the SEC under the Advisers Act and is regulated by and subject to examination by the SEC. The Advisers Act imposes numerous obligations on registered investment advisors including fiduciary duties, disclosure obligations and record keeping, operational and marketing requirements. The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act, ranging from censure to termination of an investment advisor’s registration. The failure of GCIA to comply with the requirements of the SEC could have a material adverse effect on us.

We derive a majority of our revenues from investment advisory services from investment management agreements. Under the Advisers Act, our investment management agreements may not be assigned without the client’s consent.

Broker-Dealer and Trading and Investment Regulation

G.research is a registered as broker-dealer with the SEC and is subject to regulation by FINRA and various states’ regulatory authorities. In its capacity as a broker-dealer, G.research is required to maintain certain minimum net capital amounts. These requirements also provide that equity capital may not be withdrawn, advances to affiliates may not be made or cash dividends paid if certain minimum net capital requirements are not met. G.research’s net capital, as defined, met or exceeded all minimum requirements as of December 31, 2017. As a registered broker-dealer, G.research is also subject to periodic examination by FINRA, the SEC and the state regulatory authorities.

Our trading and investment activities for client accounts are regulated under the Exchange Act, as well as the rules of various U.S. and non-U.S. securities exchanges and self-regulatory organizations, including laws governing trading on inside information, market manipulation as well as technical requirements (e.g., short sale limits, volume limitations and reporting obligations) and market regulation policies in the United States and globally. Violation of any of these laws and regulations could result in restrictions on our activities and damage our reputation.

Potential Legislation Relating to Private Pools of Capital

We manage a variety of private pools of capital, including hedge funds. Congress, regulators, tax authorities and others continue to explore increased regulation related to private pools of capital, including changes with respect to investor eligibility, certain limitations on trading activities, record-keeping and reporting, the scope of anti-fraud protections, safekeeping of client assets, tax treatment and a variety of other matters. AC may be materially and adversely affected by new legislation, rule-making or changes in the interpretation or enforcement of existing rules and regulations imposed by various regulators.

Employee Retirement Income Security Act of 1974 (“ERISA”)

Subsidiaries of AC are subject to ERISA and to regulations promulgated thereunder, insofar as they are “fiduciaries” under ERISA with respect to certain of their clients. ERISA and applicable provisions of the Code impose certain duties on persons who are fiduciaries under ERISA and prohibit certain transactions involving ERISA plan clients. Our failure to comply with these requirements could have a material adverse effect on us.

The Patriot Act

The USA Patriot Act of 2001 contains anti-money laundering and financial transparency laws and mandates the implementation of various new regulations applicable to broker-dealers and other financial services companies, including standards for verifying client identification at account opening, and obligations to monitor client transactions and report suspicious activities. Anti-money laundering laws outside of the United States contain some similar provisions. Our failure to comply with these requirements could have a material adverse effect on us.

Laws and Other Issues Relating to Taking Significant Equity Stakes in Companies

Investments by AC and on behalf of our advisory clients and Investment Partnerships often represent a significant equity ownership position in an issuer’s equity. As of December 31, 2017, we had five percent or more beneficial ownership with respect to 108 equity securities (this is partially due to the fact that we may be deemed to be a member of “group” with GAMCO and therefore may be deemed to beneficially own the securities owned by that group). This activity raises frequent regulatory, legal and disclosure issues regarding our aggregate beneficial ownership level with respect to portfolio securities, including issues relating to issuers’ stockholder rights plans or “poison pills,” and various federal and state regulatory limitations, including state gaming laws and regulations, federal communications laws and regulations and federal and state public utility laws and regulations, as well as federal proxy rules governing stockholder communications and federal laws and regulations regarding the reporting of beneficial ownership positions. Our failure to comply with these requirements could have a material adverse effect on us.

Existing European Regulation Overview

Alternative Investment Fund Managers Directive. Our European business is impacted by the EU Alternative Investment Fund Managers Directive (“AIFMD”), which became effective on July 21, 2011. AIFMD regulates managers of, and service providers to, a broad range of alternative investment funds (“AIFs”) domiciled within and (depending on the precise circumstances) outside the EU. AIFMD also regulates the marketing of all AIFs inside the European Economic Area (“EEA”). AIFMD is being implemented in stages, which run through 2018. Compliance with AIFMD’s requirements restrict alternative investment fund marketing and impose additional compliance and disclosure obligations regarding remuneration, capital requirements, leverage, valuation, stakes in EU companies, depositaries, the domicile of custodians and liquidity management on AC. These new compliance and disclosure obligations and the associated risk management and reporting requirements will subject us to additional expenses.

Undertakings for Collective Investment in Transferable Securities. The EU has also adopted directives on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (“UCITS”) impacting depositary functions, remuneration policies and sanctions. The latest initiative in this area, UCITS V, which became effective in September 2014, seeks to align the depositary regime, remuneration rules and sanctioning powers of regulators under the UCITS Directive with the requirements of AIFMD. UCITS V was required to be adopted in the national law of each EU member state during the second quarter of 2016. Similarly, in August 2014 ESMA revised the guidelines it initially published in 2012 on exchange-traded funds and other UCITS funds. The guidelines introduced new collateral management requirements for UCITS funds concerning collateral received in the context of derivatives using Efficient Portfolio Management (“EPM”) techniques (including securities lending) and over-the-counter derivative transactions. These rules required us to make changes to our collateral management arrangements applicable to the EPM of the UCITS funds for which GCIA acts as a sub-advisor. Compliance with the UCITS directives will cause us to incur additional expenses associated with new risk management and reporting requirements.

Markets in Financial Instruments Directive. MiFID is the acronym for the European Union’s (“EU”) Markets in Financial Instruments Directive. MiFID has been in force since November 1, 2007 and its goal is to foster a competitive and level playing field between trading venues for financial instruments in the European Economic Area (“EEA ”) and to improve investor protection across the EEA. After the 2008 financial crisis the European Commission (“EC”) determined to revise MiFID. In furtherance of this, the replacement directive was adopted by the EC on July 2, 2014 (together with its underlying directives, regulations and technical standards, “MiFID II”) and all EU Member States were required to fully implement MiFID II by January 3, 2018.

MiFID II creates specific new rules regarding the use of “soft dollars” to pay for research. A MiFID licensed investment firm that is providing portfolio management services or independent investment advisory services to clients may not pay for third party research with soft dollars generated through client trading activity. Research must be paid for either (i) by the investment firm out of its own resources or (ii) through a separate research payment account (“RPA”) for each client (SMA or pooled vehicle established by the investment firm) to pay for the research. While currently neither GCIA nor G.research is directly subject to MiFID II, GCIA may be invoiced separately by any EU brokers from whom it purchases research in the future and/or clients may begin to require that GCIA “unbundle” research payments from commission trading. To the extent G.research attempts to provide its institutional research services to EU based clients, those clients may also demand that G. research separately invoice them for trading and research.

The Financial Conduct Authority (“FCA”) currently regulates Gabelli Securities International (UK) Limited (“GSIL”), our MiFID licensed entity in the United Kingdom. Authorization by the FCA is required to conduct certain financial services related business in the United Kingdom under the Financial Services and Markets Act 2000. The FCA’s rules adopted under that Act govern the majority of a firm’s capital resources requirements, senior management arrangements, and conduct of business, interaction with clients and systems and controls. The FCA supervises GSIL through a combination of proactive engagement, event-driven and reactive supervision and thematic based reviews in order to monitor our compliance with regulatory requirements. Breaches of the FCA’s rules may result in a wide range of disciplinary actions against GSIL and/or its employees.

In addition, GSIL must comply with MiFID, the scope of which has been enhanced through MiFID II and sets out detailed requirements governing the organization and conduct of business of investment firms and regulated markets. MiFID II also includes pre- and post-trade transparency requirements for equity markets and extensive transaction reporting requirements. In addition, relevant entities must comply with revised obligations on capital resources for banks and certain investment firms (the Capital Requirements Directive), which became effective in January 2014. These include requirements not only on capital, but address matters of governance and remuneration as well. The obligations introduced through these directives will have a direct effect on some of our European operations.

Our EU-regulated entities are additionally subject to an EU regulation on OTC derivatives, central counterparties and trade repositories, which was adopted in August 2012 and which requires (i) the central clearing of standardized OTC derivatives, (ii) the application of risk-mitigation techniques to non-centrally cleared OTC derivatives and (iii) the reporting of all derivative contracts from February 2014.

Regulatory Matters Generally

The investment management industry is likely to continue facing a high level of regulatory scrutiny and to become subject to additional rules designed to increase disclosure, tighten controls and reduce potential conflicts of interest. In addition, the Commission has substantially increased its use of focused inquiries which request information from investment advisors and a number of fund complexes regarding particular practices or provisions of the securities laws. We participate in some of these inquiries in the normal course of our business. Changes in laws, regulations and administrative practices by regulatory authorities, and the associated compliance costs, have increased our cost structure and could in the future have a material adverse impact. Although we have installed procedures and utilize the services of experienced administrators, accountants and lawyers to assist us in adhering to regulatory guidelines and satisfying these requirements, and maintain insurance to protect ourselves in the case of client losses, there can be no assurance that the precautions and procedures that we have instituted and installed, or the insurance that we maintain to protect ourselves in case of client losses, will protect us from all potential liabilities.

Employees

On February 28, 2018, we had a full-time staff of 71 teammates, of whom 46 served in the portfolio management, research and trading areas, 12 served in the marketing and shareholder servicing areas and 13 served in the administrative area. We also avail ourselves of services provided by GAMCO in accordance with the Transitional Services Agreement that were entered into with GAMCO as part of the spin-off.

Status as an Emerging Growth Company

We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us as long as we qualify as an emerging growth company, except that we have irrevocably elected not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 107(b) of the JOBS Act.

We will, in general, remain as an emerging growth company for up to five full fiscal years following the spin-off. We would cease to be an emerging growth company and, therefore, become ineligible to rely on the above exemptions, if we:

•

have more than $1 billion in annual revenue in a fiscal year;

•

issue more than $1 billion of non-convertible debt during the preceding three-year period; or

•

become a “large accelerated filer” as defined in Exchange Act Rule 12b-2, which would occur after: (i) we have filed at least one annual report pursuant to the Exchange Act; (ii) we have been an SEC-reporting company for at least 12 months; and (iii) the market value of AC common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter.

ITEM 1A:

RISK FACTORS

We caution the reader that the following risks and those risks described elsewhere in this report and in our other SEC filings could have a material adverse effect on our business, prospects, financial condition, results of operations or cash flow or could cause a decline in the Company’s stock price.

Risks Related to the Spin-off

We may not achieve the benefits expected from our spin-off from GAMCO and may be more susceptible to adverse events.

We expect that, as a company independent from GAMCO, we will be able to grow organically and through acquisitions. Nonetheless, we may not be able to achieve either of these goals. Furthermore, by separating from GAMCO, there is a risk that we may be more susceptible to adverse events than we would have otherwise experienced as a subsidiary of GAMCO. As a subsidiary of GAMCO, we enjoyed certain benefits, including economies of scope and scale in costs, employees and business relationships. These benefits may not be as readily achievable as a smaller, stand-alone company.

Certain of our directors and officers may have actual or potential conflicts of interest because of their positions or relationships with GAMCO.

Mario J. Gabelli serves as our Executive Chairman and also continues to serve as Chairman and Chief Executive Officer of GAMCO. Douglas R. Jamieson, President and Chief Executive Officer of Associated Capital, continues his role as President and Chief Operating Officer of GAMCO Asset Management. Executive Vice President Agnes Mullady, who is responsible for the oversight of Associated Capital’s UCITs offerings, also acts as Senior Vice President of GAMCO and President and Chief Operating Officer of the Gabelli Funds Division. Kevin Handwerker, Associated Capital’s Executive Vice President, General Counsel and Secretary, also serves in the same capacities for GAMCO. In addition, some of our portfolio managers and employees are provided pursuant to the Transitional Services Agreement with GAMCO and are officers or employees of GAMCO. Such dual assignments could create, or appear to create, potential conflicts of interest when our and GAMCO’s officers and directors face decisions that could have different implications for the two companies.

Associated Capital has renounced its rights to certain business opportunities, and our certificate of incorporation provides that no director or officer of Associated Capital will breach their fiduciary duty and therefore be liable to Associated Capital or its stockholders by reason of the fact that any such individual directs a corporate opportunity to another person or entity (including GAMCO) instead of Associated Capital, or does not refer or communicate information regarding such corporate opportunity to Associated Capital, unless (x) such opportunity was expressly offered to such person solely in his or her capacity as a director or officer of Associated Capital or as a director or officer of any of our subsidiaries, and (y) such opportunity relates to a line of business in which Associated Capital or any of its subsidiaries is then directly engaged; provided, however, if the conditions specified in the immediately preceding clauses (x) and (y) are satisfied, any officer or director of Associated Capital may pursue such corporate opportunity (or direct it to another person or entity) if either (i) Associated Capital renounces its interest in the potential business opportunity in writing or (ii) Associated Capital does not within a reasonable period of time, begin to pursue, or thereafter continue to pursue, such corporate opportunity diligently and in good faith. Our certificate of incorporation specifically provides that any person purchasing, receiving or otherwise becoming an owner of any shares of our capital stock, or any interest therein, will be deemed to have notice of and to have consented to the corporate opportunity policy contained in our certificate of incorporation.

Also, some of our directors, executive officers, portfolio managers and teammates own shares of GAMCO common stock and GAMCO restricted stock awards (“RSAs”) or other GAMCO equity awards. The ownership of this GAMCO common stock may create, or may create the appearance of, conflicts of interest.

In addition, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between GAMCO and Associated Capital regarding the terms of the agreements governing the separation and the relationship thereafter between the companies. The executive officers and other personnel of GAMCO who serve as directors or executive management of Associated Capital may interpret these agreements in their capacity as GAMCO employees in a manner that would adversely affect the business of Associated Capital.

Also, certain subsidiaries of GAMCO and GCIA are investment advisers. The executive officers and other personnel of GAMCO who also serve as directors or executive management of Associated Capital may be confronted with the possibility of making decisions in their GAMCO capacity that would adversely affect the business of Associated Capital.

Associated Capital and GAMCO expect to be vigilant in attempting to identify and resolve any potential conflicts of interest, including but not limited to the types described above, at the earliest possible time. However, there can be no guarantee that the interests of Associated Capital may not be adversely affected at some point by such a conflict.

The separation from GAMCO may adversely affect the level of our assets under management (“AUM”).

Our revenues are dependent on the amount of our AUM as well as the performance of our products. Many investors may have invested assets in alternative investment products (the “Alternative Investments”) in part because GCIA was a subsidiary of GAMCO. There can be no assurance that we will be able to attract investors to the Alternative Investments at the same rate as in prior years. In addition, we can make no assurance that current investors will not redeem their investments from the Alternative Investments as a result of our changed relationship with GAMCO. The occurrence of either of these events could adversely affect our business, results of operations and financial condition.

Concerns about our prospects as a stand-alone company could affect our ability to attract and retain employees or individuals whom we are attempting to recruit as employees.

Our employees or individuals whom we are attempting to recruit as employees may have concerns about our prospects as a stand-alone company, including our ability to maintain our independence and our inability to continue our current reliance on GAMCO’s resources. If we are not successful in assuring our employees or individuals whom we are attempting to recruit as employees of our prospects as an independent company, our employees or recruits may seek or accept other employment, which could adversely affect our business and our results of operations.

We may have been able to receive better terms from unaffiliated third parties than the terms provided in our agreements with GAMCO.

The agreements related to our separation from GAMCO, including, but not limited to, the Separation Agreement, the Transitional Services Agreement and the Service Mark and Name License Agreement, were negotiated in the context of our separation from GAMCO while Associated Capital was still majority-owned by GAMCO. Accordingly, they may not reflect terms that would have been reached between unaffiliated parties. The terms of the agreements we negotiated in the context of our separation related to, among other things, indemnities and other obligations between GAMCO and us. Had these agreements been negotiated with unaffiliated third parties, they might have been more favorable to us.

In connection with the spin-off, GAMCO has indemnified us for certain liabilities. There can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that GAMCO’s ability to satisfy its indemnification obligations will not be impaired in the future.

Pursuant to the Separation Agreement, GAMCO will agree to indemnify us from certain liabilities. Third parties could seek to hold us responsible for any of the liabilities that GAMCO has agreed to retain, and there can be no assurance that the indemnity from GAMCO will be sufficient to protect us against the full amount of such liabilities or that GAMCO will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from GAMCO any amounts for which we are held liable, we may be temporarily required to bear those losses until such recovery. Each of these risks could adversely affect our business, results of operations and financial condition.

Risks Related to Our Industry

Changes in laws or regulations or in governmental policies and compliance with existing laws or regulations could limit the sources and amounts of our revenues, increase our costs of doing business, decrease our profitability and materially and adversely affect our business.

Our business is subject to extensive regulation in the United States, primarily at the federal level, including regulation by the SEC under the Advisers Act as well as other securities laws, by the Department of Labor under ERISA, and regulation by FINRA and state regulators. The Advisers Act imposes numerous obligations on investment advisors, including record-keeping, advertising and operating requirements, fiduciary and disclosure obligations, custodial requirements and prohibitions on fraudulent activities. In addition, our businesses are also subject to regulation by the FCA in the United Kingdom, and we are also subject to the laws of other non-U.S. jurisdictions and non-U.S. regulatory agencies or bodies.

Our failure to comply with applicable laws or regulations could result in fines, censure, suspensions of personnel or other sanctions, including revocation of our subsidiaries’ registrations as an investment advisor or broker-dealer. Industry regulations are designed to protect our clients and investors in our funds and other third parties who deal with us and to ensure the integrity of the financial markets. Our industry is frequently altered by new laws or regulations and by revisions to, and evolving interpretations of, existing laws and regulations, both in the United States and in other nations. Changes in laws or regulations or in governmental policies could limit the sources and amounts of our revenues, increase our costs of doing business, decrease our profitability and materially and adversely affect our business.

We are subject to extensive and pervasive regulation around the world.

Our business is subject to extensive regulation around the world. These regulations subject our business activities to a pervasive array of increasingly detailed operational requirements, compliance with which is costly, time-consuming and complex. We may be adversely affected by our failure to comply with current laws and regulations or by changes in the interpretation or enforcement of existing laws and regulations. Challenges associated with interpreting regulations issued in numerous countries in a globally consistent manner may add to such risks if regulators in different jurisdictions have inconsistent views or provide only limited regulatory guidance. In particular, violation of applicable laws or regulations could result in fines, temporary or permanent prohibition of certain activities, reputational harm and related client terminations, suspensions of employees or revocation of their licenses, suspension or termination of investment adviser, broker-dealer or other registrations or other sanctions, which could have a material adverse effect on our reputation or business and may cause our AUM, revenue and earnings to decline.

New tax legislation or changes in U.S. and foreign tax laws and regulations or challenges to Associated Capital’s historical taxation practices may adversely affect Associated Capital’s effective tax rate, business and overall financial condition.

Our businesses may be affected by new tax legislation or regulations, or the modification of existing tax laws and regulations, by U.S. or non-U.S. authorities. In particular, FATCA has introduced expansive new investor onboarding, withholding and reporting rules aimed at ensuring U.S. persons with financial assets outside of the United States pay appropriate taxes. The OECD has developed CRS to address the issue of offshore tax evasion on a global basis. Aimed at maximizing efficiency and reducing cost for financial institutions, the CRS provides a common standard for due diligence, reporting and exchange of financial account information. The FATCA and CRS rules will impact both U.S. and non-U.S. Investment Partnerships and separately managed accounts and subject Associated Capital to extensive additional administrative burdens.

Certain of our FATCA and CRS compliance are done by third parties, and we cannot be certain that they will always comply with applicable FATCA and CRS rules.

We also manage significant assets in products and accounts that have specific tax and after-tax related objectives, which could be adversely impacted by changes in tax policy. Additionally, any new legislation or amendments to or modification of the interpretation of tax laws could impact Associated Capital’s corporate tax position. The U.S. Tax Cuts and Jobs Act enacted in December 2017 made significant changes to the corporate and individual tax rates, available income tax deductions and the treatment of other tax attributes. Many provisions of this legislation may be subject to further technical corrections and the adoption of implementing regulations.

The application of complex tax regulations involves numerous uncertainties and in the normal course of business, U.S. and non-U.S. tax authorities may review and challenge Associated Capital’s historical tax positions. These challenges may result in adjustments to Associated Capital’s tax position, or impact the timing or amount of, taxable income, deductions or other tax allocations, which may adversely affect Associated Capital’s effective tax rate and overall financial condition.

To the extent we are forced to compete on the basis of price, we may not be able to maintain our current fee structure.

The investment management business is highly competitive and has relatively low barriers to entry. To the extent we are forced to compete on the basis of price, we may not be able to maintain our current fee structure. Although our investment management fees vary from product to product, historically we have competed primarily on the performance of our products and not on the level of our investment management fees relative to those of our competitors. In recent years, however, there has been a trend toward lower fees in the investment management industry. In order to maintain our fee structure in a competitive environment, we must be able to continue to provide clients with investment returns and service that make investors willing to pay our fees. We cannot be assured that we will succeed in providing investment returns and service that will allow us to maintain our current fee structure. Fee reductions on existing or new business could have an adverse effect on our profit margins and results of operations.

Catastrophic and unpredictable events could have a material adverse effect on our business.

A terrorist attack, political unrest, war (whether or not directly involving the United States), power failure, cyber-attack, technology failure, natural disaster or many other possible catastrophic or unpredictable events could adversely affect our future revenues, expenses and earnings by, among other things: causing disruptions in United States, regional or global economic conditions; interrupting our normal business operations; inflicting employee casualties, including loss of our key executives; requiring substantial expenditures and expenses to repair, replace and restore normal business operations; and reducing investor confidence.

Pursuant to the Transitional Services Agreement with GAMCO, we have a disaster recovery plan to address certain contingencies, but we cannot assure you that this plan will be effective or sufficient in responding to, eliminating or ameliorating the effects of all disaster scenarios. If our employees or vendors we rely upon for support in a catastrophic event are unable to respond adequately or in a timely manner, we may lose clients resulting in a decrease in AUM which may have a material adverse effect on revenues and net income.

The soundness of other financial institutions could adversely affect our business.

Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We and the investments we manage may have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including: brokers and dealers, commercial banks, investment banks, clearing organizations, mutual and hedge funds and other institutions. Many of these transactions expose us and the accounts we manage to credit risk in the event of the counterparty’s default. There is no assurance that any such losses would not materially and adversely impact Associated Capital’s revenues and earnings.

Risks Related to Our Business

Control by Mario J. Gabelli of a majority of the combined voting power of Associated Capital common stock may give rise to conflicts of interests.

Mario J. Gabelli, through his control and majority ownership of GGCP, Inc. (“GGCP”) and his individual ownership of Associated Capital common stock, will beneficially own a majority of our outstanding Associated Capital Class B Stock, representing approximately 98.6% voting control as of December 31, 2017. As long as Mario J. Gabelli indirectly beneficially owns a majority of the combined voting power of Associated Capital common stock, he will have the ability to elect all of the members of our Board and thereby control our management and affairs, including determinations with respect to acquisitions, dispositions, borrowings, issuances of common stock or other securities, and the declaration and payment of dividends on the Associated Capital common stock. In addition, Mario J. Gabelli will be able to determine the outcome of all matters submitted to a vote of our stockholders for approval and will be able to cause or prevent a change in control of Associated Capital. As a result of Mario J. Gabelli’s control, none of our agreements with Mario J. Gabelli and other companies controlled by him can be assumed to have been arrived at through “arm’s-length” negotiations, although the parties endeavor to implement market-based terms. There can be no assurance that we would not have received more favorable terms, or offered less favorable terms to, an unaffiliated party.

In addition, Mario J. Gabelli, through his control and majority ownership of GGCP, controls GAMCO, and he could take actions that favor GAMCO over Associated Capital.

We may compete with GAMCO for clients and investment opportunities.

Although our business is expected to focus primarily on alternative investment management and institutional research services, while GAMCO is expected to focus primarily on its mutual fund and institutional and private wealth management businesses, situations may arise where we find ourselves directly competing with GAMCO for investment clients and opportunities. For example, it is possible that a potential investor might consider investing in Associated Capital and GAMCO investment products and that such potential investor will have to choose between our investment products and those offered by GAMCO. In addition, Associated Capital and GAMCO could pursue the same investment opportunities in the future.

Investors in our products have the right to redeem their investments in our products on a regular basis and could redeem a significant amount of AUM during any given quarterly period, which would result in significantly decreased revenues.

Subject to any specific redemption provisions applicable to a product, investors may generally redeem their investments in our products on an annual or quarterly basis following the expiration of a specified period of time. In a declining market, the pace of redemptions and consequent reduction in our AUM potentially could accelerate. Furthermore, investors in our products may also invest in products managed by other alternative asset managers that have restricted or suspended redemptions or may in the future do so. Such investors may redeem capital from our products, even if our performance is superior to such other alternative asset managers’ performance, if they are restricted or prevented from redeeming capital from those other managers.

The decrease in revenues that would result from significant redemptions in our products could have a material adverse effect on our results of operations, cash flows and business. In 2009, due to factors related to the financial crisis, investors redeemed approximately $62 million invested in Associated Capital’s products which represented approximately 20% of Associated Capital’s AUM at that time. If economic and market conditions remain uncertain or worsen, we may once again experience significant redemptions.

Our business and financial condition may be materially adversely impacted by the highly variable nature of our revenues, results of operations and cash flows. In a typical year, a substantial portion of our incentive allocation income is determined and recorded in the fourth quarter of each year, which means that our interim results are not expected to be indicative of our results for a full year.

Our revenues are influenced by the combination of the amount of AUM and the investment performance of our products. Asset flows, whether inflows or outflows, can be highly variable from month to month and quarter to quarter. Furthermore, our products’ investment performance, which affects the amount of AUM, can be volatile due to, among other things, general market and economic conditions. Accordingly, our revenues, results of operations and cash flows may be highly variable. This variability is exacerbated during the fourth quarter of each fiscal year, primarily due to the fact that a substantial portion of our revenues historically have been, and we expect will continue to be, derived from incentive allocation income from our products. Incentive allocation income is contingent on the investment performance of the products as of the relevant measurement period, which generally is as of the end of each calendar year. We may also experience fluctuations in our results from quarter to quarter due to a number of other factors, including changes in management fees resulting from changes in the value of our products’ investments, other changes in the amount of AUM, changes in our operating expenses, unexpected business developments and initiatives and, as discussed above, general economic and market conditions. Such variability and unpredictability may lead to volatility or declines in the price of the our stock and cause our results for a particular period not to be indicative of our performance in a future period or meaningful as a basis of comparison against results for a prior period.

The amount of incentive allocation income that may be generated by our products is uncertain until it is determined and realized at a particular point in time. We generally do not record incentive allocation income in our interim financial statements other than incentive allocation income earned as a result of investor redemptions during the period. As a result of these and other factors, our interim results may not be indicative of historical performance or the results that may be expected for a full year.

In addition, a substantial portion of our products’ AUM have “high-water marks.” This means that if an investor experiences losses in a given year, we will not be able to earn incentive allocation income with respect to such investor’s investment unless and until our investment performance surpasses the high-water mark. The incentive allocation income we earn is therefore dependent on the net asset value of each investor’s investment in our products. As of December 31, 2017, approximately 21.6% of our AUM was below a high-water mark. We can make no assurances that our investors will not experience losses in future years and, as a result, we may not earn incentive allocation income in those or subsequent years until such losses are earned back.

A decline in the prices of securities generally could lead to a decline in our AUM, revenues and earnings.

Substantially all of our revenues are directly related to both the amount of our AUM and the performance of our investment products. Under our investment advisory contracts, the investment advisory fees we receive are typically based on the market value of AUM. Accordingly, a decline in the prices of securities generally may cause our revenues and net income to decline by either causing the value of our AUM to decrease, which would result in lower investment advisory fees, or causing our clients to withdraw funds in favor of investments they perceive to offer greater opportunity or lower risk, which would also result in lower fees. The securities markets are highly volatile, and securities prices may increase or decrease for many reasons beyond our control, including but not limited to economic and political events, war (whether or not directly involving the United States), acts of terrorism, unanticipated changes in currency exchange rates, interest rates, inflation rates, the yield curve, defaults by derivative counterparties, bond default risks, decreases in commodity prices, slowing growth in other countries, particularly China, the sovereign debt crisis in Europe and other factors that are difficult or impossible to predict or even to identify. If a decline in securities prices caused our revenues to decline, it could have a material adverse effect on our earnings.

The loss of the services of Mario J. Gabelli and other key personnel could have a material adverse effect on our business.

We are dependent on the efforts of Mario J. Gabelli, our Executive Chairman. The loss of the services of Mario J. Gabelli could have a material adverse effect on our business.

		Nov. 30, 2015				Dec. 31, 2015				Dec. 31, 2016				Dec. 31, 2017
Associated Capital Group, Inc.			100.00				100.89				109.04				114.21
S&P 500 Index			100.00				98.42				110.19				134.25
SNL Asset Manager Index			100.00				92.59				97.95				130.07

		Year Ended December 31,
Income Statement Data (in thousands)		2017				2016				2015
Revenues
Investment advisory and incentive fees		$	14,551			$	18,320			$	12,635
Institutional research services			12,199				12,634				9,927
Other revenues			165				273				280
Total revenues			26,915				31,227				22,842
Expenses
Compensation			30,644				30,968				26,343
Stock-based compensation			5,879				2,464				4,931
Management fee			713				1,593				(309	)
Other operating expenses			10,065				8,434				6,189
Total expenses			47,301				43,459				37,154
Operating loss			(20,386	)			(12,232	)			(14,312	)
Other income (expense)
Net gain from investments			20,598				19,909				8,276
Interest and dividend income			10,501				12,669				4,720
Interest expense			(227	)			(590	)			(1,260	)
Shareholder-designated contribution			(4,222	)			(5,411	)			-
Total other income, net			26,650				26,577				11,736
Income (loss) before income taxes			6,264				14,345				(2,576	)
Income tax provision (benefit)			(2,420	)			3,876				(1,685	)
Net income (loss)			8,684				10,469				(891	)
Net income (loss) attributable to noncontrolling interests			(153	)			251				(780	)
Net income (loss) attributable to Associated Capital Group, Inc.’s shareholders		$	8,837			$	10,218			$	(111	)
Net income (loss) per share attributable to Associated Capital Group, Inc.’s shareholders:
Basic		$	0.37			$	0.41			$	-
Diluted		$	0.37			$	0.41			$	-
Weighted average shares outstanding:
Basic			23,792				24,870				24,887
Diluted			23,925				25,175				25,170
Actual shares outstanding at December 31st (a)			23,639				24,255				25,440
Dividends declared per share:		$	0.20			$	0.20			$	-

		December 31,
Balance Sheet Data (in thousands)		2017				2016				2015
Total assets		$	1,006,915			$	952,603			$	836,748
Long-term obligations			-				-				-
Other liabilities and noncontrolling interest			88,768				78,581				85,199
Total liabilities and noncontrolling interest			88,768				78,581				85,199
Total equity		$	918,147			$	874,022			$	751,549

Reconciliation of Total Equity to Adjusted Economic Book Value
		Total				Per Share
Total equity as reported		$	918,147			$	38.84
Add: GAMCO Note			50,000				2.12
Adjusted Economic book value		$	968,147			$	40.96

		Year Ended December 31,
		2017				2016				2015
		(in thousands)
Cash flows provided by (used in):
Operating activities		$	(67,620	)		$	6,588			$	(47,350	)
Investing activities			(18,734	)			(4,115	)			(41,734	)
Financing activities			65,373				105,872				9,281
Net increase (decrease) in cash and cash equivalents			(20,981	)			108,345				(79,803	)
Cash and cash equivalents at beginning of year			314,093				205,750				285,530
Increase in cash from consolidation			-				-				10
Increase (decrease) in cash from deconsolidation			-				(2	)			13
Cash and cash equivalents at end of year		$	293,112			$	314,093			$	205,750

		2018
Contractual Obligations:
Occupancy charge		$	94
Total		$	94

Our exposure to pricing risk in equity securities is directly related to our role as financial intermediary and advisor for AUM in our investment partnerships and separate accounts as well as our proprietary investment and trading activities. At December 31, 2017, we had equity investments, including open-end funds and closed-end funds largely invested in equity products, of $442.9 million. Included in this total are investments in open-end funds and closed-end funds of $149.3 million which seek to reduce market risk through the diversification of financial instruments within their portfolios. In addition, we may alter our investment holdings from time to time in response to changes in market risks and other factors considered appropriate by management. We also hold investments in partnerships which invest primarily in equity securities and which are subject to changes in equity prices. These investments totaled $145.6 million at December 31, 2017, $102.3 million of which comprised partnerships which invest in risk arbitrage. Risk arbitrage is primarily dependent upon deal closure rather than the overall market environment. The equity investment portfolio is recorded at fair value and is expected to move in line with the equity markets. The trading portfolio changes are recorded as net gain/(loss) from investments in the consolidated statements of income while the available for sale portfolio changes are recorded in other comprehensive income in the consolidated statements of financial condition.

Market Risk

Our primary market risk exposures are to changes in equity prices and interest rates. Since a majority of our AUM is invested in equities, our financial results are subject to equity market risk as revenues from our investment management services are sensitive to stock market dynamics. In addition, returns from our proprietary investment portfolio are exposed to interest rate and equity market risk.

The Company’s Executive Chairman oversees the proprietary investment portfolios and allocations of proprietary capital among the various strategies. The Executive Chairman and the Board of Directors review the proprietary investment portfolios throughout the year. Additionally, the Company monitors its proprietary investment portfolios to ensure that they are in compliance with the Company’s guidelines.

Equity Price Risk

The Company earns a substantial portion of its revenue as advisory fees from investment partnership and separate account assets. Such fees represent a percentage of AUM, and the majority of these assets are in equities. Accordingly, since revenues are proportionate to the value of those investments, a substantial increase or decrease in overall equity markets will likely have a corresponding effect on the Company’s revenues.

Investments consisted of the following (in thousands):

We may alter our investment holdings from time to time in response to changes in market risks and other factors considered appropriate by management. Of the approximately $293.6 million and $217.9 million invested in common and preferred stocks at December 31, 2017 and 2016, respectively, $108.7 million and $31.0 million was invested by the Company in arbitrage opportunities in connection with mergers, consolidations, acquisitions, tender offers or other similar transactions. Risk arbitrage generally involves investing in securities of companies that have announced corporate transactions with agreed upon terms and conditions, including pricing, and typically involves less market risk than holding common stocks in a trading portfolio. The principal risk associated with merger arbitrage transactions is the inability of the companies involved to complete the transaction.

Of the investments in affiliated registered investment companies at December 31, 2017 and 2016, $57.8 million and $56.4 million, respectively, consisted of investment companies which invest in merger arbitrage opportunities. Securities sold, not yet purchased are stated at fair value and are subject to market risks resulting from changes in price and volatility. At December 31, 2017 and 2016, the fair value of securities sold, not yet purchased was $5.7 million and $10.0 million, respectively. Investments in partnerships totaled $145.6 million and $129.4 million at December 31, 2017 and 2016, respectively, $102.3 million and $91.8 million of which consisted of investment partnerships and offshore funds which invest in risk arbitrage opportunities.

The following table provides a sensitivity analysis for our investments in equity securities and partnerships and affiliates which invest primarily in equity securities, excluding arbitrage products for which the principal exposure is to deal closure and not overall market conditions, as of December 31, 2017 and 2016. The sensitivity analysis assumes a 10% increase or decrease in the value of these investments (in thousands):

Interest Rate Risk

Our exposure to interest rate risk principally results from our investment of excess cash in a related money market fund that holds U.S. Government securities. These investments are primarily short term in nature, and the carrying value of these investments generally approximates fair value. Based on the December 31, 2017 cash and cash equivalent balance of $293.1 million, a 1% increase in interest rates would increase our interest income by $2.9 million annually. Given that our return on these cash equivalent investments in the current low interest rate environment is approximately 1.15% annually, an analysis of a 1% decrease is not meaningful.

ITEM 8:

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission that are not required under the related instructions or are inapplicable have been omitted.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Associated Capital Group, Inc.

Rye, New York

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of Associated Capital Group, Inc. and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”).  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of a Matter

As discussed in Note A to the consolidated financial statements, the Company separated from GAMCO Investors, Inc. (“GAMCO”) on November 30, 2015. The Company did not operate as an independent, stand-alone entity for the year ended December 31, 2015. For periods prior to November 30, 2015, the combined consolidated financial statements were derived from the consolidated financial statements and accounting records of GAMCO.

/s/ DELOITTE & TOUCHE LLP

New York, New York

March 8, 2018

We have served as the Company’s auditor since 2015.

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

See accompanying notes.

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data)

(a)	Net of income tax expense (benefit) of $2,876, $2,328 and ($6,434) for 2017, 2016 and 2015, respectively.

See accompanying notes.

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except per share data)

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)