News Column

SILVERCREST ASSET MANAGEMENT GROUP INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 13, 2014

Overview

We are a premier, full-service wealth management firm focused on providing financial advisory and related family office services to ultra-high net worth individuals and endowments, foundations and other institutional investors. In addition to a wide range of investment capabilities, we offer a full suite of complementary and customized family office services for families seeking a comprehensive oversight of their financial affairs. Our assets under management grew 3.1% from $16.2 billion to $16.7 billion during the three months ended June 30, 2014, and grew 2.2% from $13.6 billion to $13.9 billion during the three months ended June 30, 2013. Our assets under management grew 6.4% from $15.7 billion to $16.7 billion during the six months ended June 30, 2014, and grew 24.1% from $11.2 billion to $13.9 billion during the six months ended June 30, 2013. As part of the reorganization of Silvercrest L.P. that occurred in connection with our initial public offering, Silvercrest became the general partner of Silvercrest L.P, our operating company. The business includes the management of funds of funds, and other investment funds, collectively referred to as the "Silvercrest Funds". In addition, the partnership units of all continuing partners of Silvercrest L.P. were converted to Class B units that have equal economic rights to our shares of Class A common stock. Silvercrest L.P. has issued deferred equity units exercisable for 52,188 Class B units which entitle the holders thereof to receive distributions from Silvercrest L.P. to the same extent as if the underlying Class B units were outstanding. Net profits and net losses of Silvercrest L.P. will be allocated, and distributions from Silvercrest L.P. will be made, to its current partners pro rata in accordance with their respective partnership units (and assuming the Class B units underlying all deferred equity units are outstanding). The historical results of operations discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations include those of Silvercrest L.P. and its subsidiaries. Following the completion of the reorganization of Silvercrest L.P., as the general partner of Silvercrest L.P., we control its business and affairs and, therefore, consolidate its financial results with ours. The interests of the limited partners' collective 38.5% partnership interest in Silvercrest L.P. as of June 30, 2014 are reflected in Non-controlling interests in our condensed consolidated financial statements. As a result of the reorganization being completed at the end of the second quarter of 2013, the results of operations and cash flows for the six months ended June 30, 2013 are those of Silvercrest L.P. For the six months ended June 30, 2014, our net income, after amounts attributable to non-controlling interests, represents approximately 61.5% of Silvercrest L.P.'s net income.



Key Performance Indicators

When we review our performance, we focus on the indicators described below:

For the Three Months For the Six Months Ended June 30, Ended June 30, (in thousands except as indicated) 2014 2013 2014 2013 Revenue $ 17,226$ 14,472$ 33,946$ 28,157 Income before other income (expense), net $ 4,243$ 5,825$ 8,038$ 11,598 Net income $ 2,798$ 5,467$ 5,039$ 10,929 Net income attributable to Silvercrest $ 1,351 $ - $ 2,295 $ - Adjusted EBITDA (1) $ 5,108$ 4,393$ 10,089$ 8,530 Adjusted EBITDA margin (2) 29.7 % 30.4 % 29.7 % 30.3 % Assets under management at period end (billions) $ 16.7$ 13.9$ 16.7$ 13.9 Average assets under management (billions) (3) $ 16.5$ 13.8 $



16.2 $ 12.6

(1) EBITDA, a non-GAAP measure of earnings, represents net income before

provision for income taxes, interest income, interest expense, depreciation

and amortization. We define Adjusted EBITDA as EBITDA without giving effect

to items including but not limited to Delaware Franchise Tax, professional

fees associated with acquisitions or financing transactions, gains on

extinguishment of debt or other obligations related to acquisitions, losses

on disposals or abandonment of assets and leaseholds, severance and other

similar expenses, but including partner incentive allocations, prior to our

initial public offering, as an expense. We use this non-GAAP financial

measure to assess the strength of our business. These adjustments and the

non -GAAP financial measures that are derived from them provide supplemental

information to analyze our business from period to period. Investors should

consider these non-GAAP financial measures in addition to, and not as a

substitute for financial measures in accordance with GAAP.

(2) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by total

revenue.

(3) We have computed average assets under management by averaging assets under

management at the beginning of the applicable period and assets under management at the end of the applicable period. 28

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Revenue

We generate revenue from management and advisory fees, performance fees, and family office services fees. Our management and advisory fees are generated by managing assets on behalf of separate accounts and acting as investment adviser for various investment funds. Our performance fees relate to assets managed in external investment strategies in which we have a revenue sharing arrangement and in funds in which we have no partnership interest. Our management and advisory fees and family office services fees income is recognized through the course of the period in which these services are provided. Income from performance fees is recorded at the conclusion of the contractual performance period when all contingencies are resolved. In certain arrangements, we are only entitled to receive performance fees and allocations when the return on assets under management exceeds certain benchmark returns or other performance targets. The discretionary investment management agreements for our separately managed accounts do not have a specified term. Rather, each agreement may be terminated by either party at any time, unless otherwise agreed with the client, upon written notice of termination to the other party. The investment management agreements for our private funds are generally in effect from year to year, and may be terminated at the end of any year (or, in certain cases, on the anniversary of execution of the agreement) (i) by us upon 30 or 90 days' prior written notice and (ii) after receiving the affirmative vote of a specified percentage of the investors in the private fund that are not affiliated with us, by the private fund on 60 or 90 days' prior written notice. The investment management agreements for our private funds may also generally be terminated effective immediately by either party where the non-terminating party (i) commits a material breach of the terms subject, in certain cases, to a cure period, (ii) is found to have committed fraud, gross negligence or willful misconduct or (iii) terminates, becomes bankrupt, becomes insolvent or dissolves. Each of our investment management agreements contains customary indemnification obligations from us to our clients. The tables below set forth the amount of assets under management, the percentage of management and advisory fees revenues, the amount of revenue recognized, and the average assets under management for discretionary managed accounts and for private funds for each period presented.



Discretionary Managed Accounts

As of and for the Three As of and for the Six Months Ended June 30, Ended June 30, (in billions) 2014 2013 2014 2013 AUM concentrated in Discretionary Managed Accounts $ 10.1$ 7.6$ 10.1$ 7.6 Average AUM For Discretionary Managed Accounts $ 9.9$ 7.7$ 9.7$ 7.4 Discretionary Managed Accounts Revenue (in millions) $ 13.7$ 10.9$ 27.1$ 21.2 Percentage of management and advisory fees revenue 86 % 83 % 86 % 83 % Private Funds As of and for the Three As of and for the Six Months Ended June 30, Ended June 30, (in billions) 2014 2013 2014 2013 AUM concentrated in Private Funds $ 1.0$ 1.0$ 1.0$ 1.0 Average AUM For Private Funds $ 0.9$ 1.0$ 0.9$ 1.0 Private Funds Revenue (in millions) $ 2.3$ 2.3$ 4.5$ 4.5 Percentage of management and advisory fees revenue 14 % 17 % 14 % 17 % Our advisory fees are primarily driven by the level of our assets under management. Our assets under management increase or decrease based on the net inflows or outflows of funds into our various investment strategies and the investment performance of our clients' accounts. In order to increase our assets under management 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. Our ability to continue to attract clients will depend on a variety of factors including, among others:



· our ability to educate our target clients about our classic value investment

strategies and provide them with exceptional client service; · the relative investment performance of our investment strategies, as compared to competing products and market indices;



· competitive conditions in the investment management and broader financial

services sectors; 29

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· investor sentiment and confidence; and

· our decision to close strategies when we deem it to be in the best interests

of our clients.

The majority of advisory fees that we earn on separately-managed accounts are based on the value of assets under management on the last day of each calendar quarter. Most of our advisory fees are billed quarterly in advance on the first day of each calendar quarter. Our basic annual fee schedule for management of clients' assets in separately managed accounts is: (i) for managed equity or balanced portfolios, 1% of the first $10 million and 0.60% on the balance, (ii) for managed fixed income only portfolios, 0.40% on the first $10 million and 0.30% on the balance and (iii) for the municipal value strategy, 0.65%. Our fee for monitoring non-discretionary assets can range from 0.05% to 0.01%, but can also be incorporated into an agreed-upon fixed family office service fee. The majority of our client relationships pay a blended fee rate since they are invested in multiple strategies. Management fees earned on investment funds that we advise are calculated primarily based on the net assets of the funds. Some funds calculate investment fees based on the net assets of the funds as of the last business day of each calendar quarter, whereas other funds calculate investment fees based on the value of net assets on the first business day of the month. Depending on the investment fund, fees are paid either quarterly in advance or quarterly in arrears. For our private funds, the fees range from 0.25% to 1.5% annually. Certain management fees earned on investment funds for which we perform risk management and due diligence services are based on flat fee agreements customized for each engagement. Average annual management fee is calculated by dividing our actual annualized revenue earned over a period by our average assets under management during the same period (which is calculated by averaging quarter-end assets under management for the applicable period). Our average annual management fee was 0.42% and 0.42% for the three months ended June 30, 2014 and 2013, respectively and 0.42% and 0.45% for the six months ended June 30, 2014 and 2013, respectively. Changes in our total average management fee rates are typically the result of changes in the mix of our assets under management and the concentration in our equities strategies whose fee rates are higher than those of other investment strategies. The average annual management fee decreased for the six months ended June 30, 2014 as compared with the same period in the prior year as a result of increased non-discretionary assets under management which is associated with either flat-fee or low-basis assets. Advisory fees are also 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. These cash flow-related adjustments were insignificant for the six months ended June 30, 2014 and 2013. Silvercrest L.P. has authority to take fees directly from external custodian accounts of its separately managed accounts.



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

· changes in assets under management due to appreciation or depreciation of

our investment portfolios, and the levels of the contribution and withdrawal

of assets by new and existing clients;

· allocation of assets under management among our investment strategies, which

have different fee schedules;

· allocation of assets under management between separately managed accounts

and advised funds, for which we generally earn lower overall advisory fees;

and

· the level of our performance with respect to accounts and funds on which we

are paid incentive fees.

Our family office services capabilities enable us to provide comprehensive and integrated services to our clients. Our dedicated group of tax and financial planning professionals provide financial planning, tax planning and preparation, partnership accounting and fund administration and consolidated wealth reporting among other services. Family office services income fluctuates based on both the number of clients for whom we perform these services and the level of agreed-upon fees, most of which are flat fees. Therefore, non-discretionary assets under management, which are associated with family office services, do not typically serve as the basis for the amount of family office services revenue that is recognized. We have experienced a steady increase in family office services fees over the past few years as more of our separately managed accounts relationships have taken advantage of these services. We have also been successful in attracting new clients who have engaged us primarily for our family office services.



Expenses

Our expenses consist primarily of compensation and benefits expenses, as well as general and administrative expense including rent, professional services fees, data-related costs and sub-advisory fees. These 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 partners of

Silvercrest L.P., changes in our employee count and mix, and competitive

factors; and

· the level of management fees from funds that utilize sub -advisors will

affect the amount of sub- advisory fees. 30

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Our professional services fees have increased as a result of being a public company.

Compensation and Benefits 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 principals and employees. Our compensation methodology is intended to meet the following objectives: (i) support our overall business strategy; (ii) attract, retain and motivate top-tier professionals within the investment management industry; and (iii) align our employees' interests with those of our equity owners. We have experienced, and expect to continue to experience, a general rise in compensation and benefits expense commensurate with growth in headcount and with the need to maintain competitive compensation levels. Following the consummation of our initial public offering, we account for partner incentive distributions as an expense in our Statement of Operations. Accordingly, this has the effect of increasing compensation expense relative to the amounts that have been recorded historically in our financial statements.



The components of our compensation expense for the three and six months ended June 30, 2014 and 2013 are as follows:

For the Three Months For the Six Months Ended June 30, Ended June 30, (in thousands) 2014 2013 2014 2013 Cash compensation and benefits (1) $ 9,501$ 5,777$ 18,697$ 10,350 Distributions on liability awards (2) - 4 1 11 Non-cash equity-based compensation expense 260 144 774 764 Total compensation expense $ 9,761$ 5,925$ 19,472$ 11,125



(1) For the three and six months ended June 30, 2014, $4,326 and $8,440 of

partner incentive payments was included in cash compensation and benefits

expense.

(2) Cash distributions on the portion of unvested deferred equity units that are

subject to forfeiture are expensed when paid. The portion of unvested deferred equity units that can be settled in cash are classified as liability awards. On February 29, 2012, February 28, 2011 and February 24, 2010, Silvercrest L.P. and Silvercrest GP LLC, our predecessor, granted equity-based compensation awards to certain of their principals based on the fair value of the equity interests of Silvercrest L.P. and Silvercrest GP LLC. Each grant included a deferred equity unit and performance unit, subject to forfeiture and acceleration of vesting. As a result of the reorganization of Silvercrest L.P. and the initial public offering, each 100 deferred equity units represent the unsecured right to receive 100 Class B units of Silvercrest L.P., subject to vesting over a four-year period beginning on the first anniversary of the date of grant. Each deferred equity unit, whether vested or unvested, entitles the holder to receive distributions from Silvercrest L.P. as if such holder held such unit. Upon each vesting date, a holder may receive the number of units vested or a combination of the equivalent cash value of some of the units and units, but in no event may the holder receive more than 50% of the aggregate value of the vested units in cash. To the extent that holders elect to receive up to 50% of the aggregate value of the vested units in cash, we could have less cash to utilize. We have accounted for the distributions on the portion of the deferred equity units that are subject to forfeiture as compensation expense. Equity-based compensation expense will be recognized on the February 29, 2012 and February 28, 2011 grant dates of the deferred equity unit and performance unit awards through February 29, 2016 and February 28, 2015, respectively. Each performance unit represents the right to receive one Class B unit of Silvercrest L.P. for each two units of Silvercrest L.P. issued upon vesting of the deferred equity units awarded to the employee, in each case subject to the achievement of defined performance goals. Although performance units will only vest upon the achievement of the performance goals, they are expensed over the same vesting period as the deferred equity units with which they are associated because there is an explicit service period.



General and Administrative Expenses

General and administrative expenses include occupancy-related costs, professional and outside services fees, office expenses, depreciation and amortization, sub-advisory fees and the costs associated with operating and maintaining our research, trading and portfolio accounting systems. Our costs associated with operating and maintaining our research, trading and portfolio accounting systems and professional services expenses generally increase or decrease in relative proportion to the number of employees retained by us and the overall size and scale of our business operations. Sub-advisory fees will fluctuate based on the level of management fees from funds that utilize sub-advisors. 31 -------------------------------------------------------------------------------- As a result of the completion of our initial public offering, we will continue and expect to incur additional expenses as a result of being a public company for, among other things, directors and officers insurance, director fees, SEC reporting and compliance, including Sarbanes-Oxley compliance, transfer agent fees, professional fees and other similar expenses. These additional expenses have had, and will have the effect of reducing our net income.



Other Income

Other income is derived primarily from investment income arising from our investments in various private investment funds that were established as part of our investment strategies. We expect the investment components of other income, in the aggregate, to fluctuate based on market conditions and the success of our investment strategies. Performance fees earned from those investment funds in which we have a partnership interest have been earned over the past few years as a result of the achievement of various high water marks depending on the investment fund. These performance fees are recorded based on the equity method of accounting. The majority of our performance fees over the past few years have been earned from our fixed income-related funds.



Non-Controlling Interests

After the reorganization of Silvercrest L.P., we became the general partner of SLP and control its business and affairs and, therefore, consolidate its financial results with ours. In light of the limited partners' interest in SLP, we reflect their partnership interests as non-controlling interests in our Condensed Consolidated Financial Statements.



Provision for Income Tax

While Silvercrest L.P. has historically not been subject to U.S. federal and certain state income taxes, it has been subject to the New York City Unincorporated Business Tax. As a result of the reorganization of Silvercrest L.P. and the completion of our initial public offering, we became subject to taxes applicable to C-corporations. Our effective tax rate, and the absolute dollar amount of our tax expense, has increased as a result of this reorganization which will be offset by the benefits of the tax receivable agreement entered into with our Class B stockholders.



Acquisition

On March 28, 2013, we acquired certain assets of Ten-Sixty. Ten-Sixty was a registered investment adviser that advised on approximately $1.9 billion of assets primarily on behalf of institutional clients. This strategic acquisition expands our hedge fund due diligence capabilities and continues the growth of our institutional business. Under the terms of the asset purchase agreement, we paid cash consideration at closing of $2.5 million and issued a promissory note to Ten-Sixty for $1.5 million subject to adjustment. As of June 30, 2014, the aggregate principal amount of the promissory note is approximately $1.0 million which is payable in quarterly installments from June 30, 2014 through March 31, 2017 of $0.1 million each. Operating Results Revenue Our revenues for the three and six months ended June 30, 2014 and 2013 are set forth below: For the Three Months Ended June 30, (in thousands) 2014 2013 2014 vs. 2013 ($) 2014 vs. 2013 (%) Management and advisory fees $ 16,088$ 13,272 $ 2,816 21.2 % Performance fees and allocations - - - - Family office services 1,138 1,200 (62 ) -5.2 % Total revenue $ 17,226$ 14,472 $ 2,754 19.0 % For the Six Months Ended June 30, (in thousands) 2014 2013 2014 vs. 2013 ($) 2014 vs. 2013 (%) Management and advisory fees $ 31,671$ 25,729 $ 5,942 23.1 % Performance fees and allocations - 3 (3 ) -100.0 % Family office services 2,275 2,425 (150 ) -6.2 % Total revenue $ 33,946$ 28,157 $ 5,789 20.6 % 32

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The growth in our assets under management during the three and six months ended June 30, 2014 and 2013 is described below:

Assets Under Management Non- (in billions) Discretionary Discretionary Total As of March 31, 2013 $ 8.6 $ 5.0 $ 13.6 Gross client inflows 0.4 0.1 0.5 Gross client outflows (0.5 ) (0.1 ) (0.6 ) Market appreciation 0.1 0.3 0.4 As of June 30, 2013 $ 8.6 $ 5.3 $ 13.9 (1) As of March 31, 2014 $ 10.6 $ 5.6 $ 16.2 Gross client inflows 0.8 0.1 0.9 Gross client outflows (0.7 ) (0.2 ) (0.9 ) Market appreciation 0.4 0.1 0.5 As of June 30, 2014 $ 11.1 $ 5.6 $ 16.7 (1) As of January 1, 2013 $ 8.0 $ 3.1 $ 11.2 Gross client inflows 2.1 2.1 4.2 Gross client outflows (2.1 ) (0.3 ) (2.5 ) Market appreciation 0.6 0.4 1.0 As of June 30, 2013 $ 8.6 $ 5.3 $ 13.9 (1) As of January 1, 2014 $ 10.1 $ 5.6 $ 15.7 Gross client inflows 1.7 0.3 2.0 Gross client outflows (1.1 ) (0.3 ) (1.4 ) Market appreciation 0.4 (- ) 0.4 As of June 30, 2014 $ 11.1 $ 5.6 $ 16.7 (1)



(1) Less than 5% of assets under management generate performance fees.

The following chart summarizes the performance 1, 2 of each of our principal equity strategies relative to their appropriate benchmarks since inception:

PROPRIETARY EQUITY PERFORMANCE

as of 6/30/14 ANNUALIZED PERFORMANCE INCEPTION 1-YEAR 3-YEAR 5-YEAR 7-YEAR INCEPTION

Large Cap Value Composite 4/1/02 24.7 14.9 18.3 6.9 8.4 Russell 1000 Value Index 23.8 16.9 19.2 4.8 7.3 Small Cap Value Composite 4/1/02 25.1 16.3 21.6 12.3 11.9 Russell 2000 Value Index 22.5 14.6 19.9 5.5 8.8 Smid Cap Value Composite 10/1/05 25.7 16.1 20.5 9.4 10.5 Russell 2500 Value Index 24.9 16.0 21.6 6.7 8.4 Multi Cap Value Composite 7/1/02 25.7 15.6 19.8 8.8 9.8 Russell 3000 Value Index 23.7 16.7 19.3 4.9 8.3 Equity Income Composite 12/1/03 26.7 17.4 20.1 10.1 12.5 Russell 3000 Value Index 23.7 16.7 19.3 4.9 8.6 Focused Value Composite 9/1/04 27.4 13.8 19.3 8.3 11.4 Russell 3000 Value Index 23.7 16.7 19.3 4.9 8.2 33

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1 Returns are based upon a time weighted rate of return of various fully

discretionary equity portfolios with similar investment objectives,

strategies and policies and other relevant criteria managed by Silvercrest

Asset Management Group LLC ("SAMG LLC"), a subsidiary of Silvercrest.

Performance results are gross of fees and net of commission charges. An

investor's actual return will be reduced by the advisory fees and any other

expenses it may incur in the management of the investment advisory account.

SAMG LLC's standard advisory fees are described in Part 2 of its Form ADV.

Actual fees and expenses will vary depending on a variety of factors,

including the size of a particular account. Returns greater than one year

are shown as annualized compounded returns and include gains and accrued

income and reinvestment of distributions. Past performance is no guarantee

of future results. This contains no recommendations to buy or sell

securities or a solicitation of an offer to buy or sell securities or

investment services or adopt any investment position. This is not intended

to constitute investment advice and is based upon conditions in place during

the period noted. Market and economic views are subject to change without

notice and may be untimely when presented here. Readers are advised not to infer or assume that any securities, sectors or markets described were or



will be profitable. SAMG LLC claims compliance with the Global Investment

Performance Standards (GIPSŪ).

2 The market indices used to compare to the performance of our strategies are

as follows:

The Russell 1000 Index is a capitalization-weighted, unmanaged index that

measures the 1000 smallest companies in the Russell 3000. The Russell 1000

Value Index is a capitalization-weighted, unmanaged index that includes

those Russell 1000 Index companies with lower price-to-book ratios and lower

expected growth values.

The Russell 2000 Index is a capitalization-weighted, unmanaged index that

measures the 2000 smallest companies in the Russell 3000. The Russell 2000

Value Index is a capitalization-weighted, unmanaged index that includes

those Russell 2000 Index companies with lower price-to-book ratios and lower

expected growth values.

The Russell 2500 Index is a capitalization-weighted, unmanaged index that

measures the 2500 smallest companies in the Russell 3000. The Russell 2500

Value Index is a capitalization-weighted, unmanaged index that includes

those Russell 2000 Index companies with lower price-to-book ratios and lower

expected growth values.

The Russell 3000 Value Index is a capitalization-weighted, unmanaged index

that measures those Russell 3000 Index companies with lower price-to-book

ratios and lower forecasted growth.

The following chart shows the performance of our Company's basic asset allocation model portfolio:

MODEL PORTFOLIO PERFORMANCE

as of 6/30/14 ANNUALIZED PERFORMANCE INCEPTION



1-YEAR 3-YEAR 5-YEAR 7-YEAR INCEPTION Income Portfolio

5-1-03 12.1 7.7 9.5 5.9 7.0 25/45/30% S&P 500, Barclays Aggregate, HFRI FOF Comp 10.5 6.9 8.4 4.8 6.1 Balanced Portfolio 5-1-03 16.6 9.0 12.1 6.3 8.2 50/30/20% S&P 500, Barclays Aggregate, HFRI FOF Comp 15.3 10.1 11.9 5.7 7.4 Growth Portfolio 5-1-03 22.5 11.3 16.4 6.6 9.6 80/10/10% S&P 500, Barclays Aggregate, HFRI FOF Comp 21.0 14.0 16.1 6.0 8.6 These model portfolios are not actual strategies in which clients can invest or allocate assets. They are hypothetical combinations of: (i) internally-managed strategies in which clients are invested and (ii) externally-managed funds or products in which clients are invested. We track three such portfolios depending on the overall strategy by which the securities purchased may be characterized. They are Income, Growth, and Balanced (Income and Growth). The returns shown assume annual rebalancing and reinvestment of dividends over the entirety of each of the periods shown. Some of the underlying returns used to calculate each portfolio's returns were net of fees and some were gross of fees. The rates of return for each of the three portfolios are presented gross of investment management fees and custody fees, but include the deduction of estimated brokerage commissions and transaction costs. An investor's actual return on a portfolio of the type shown would be reduced by the advisory fees and any other expenses it may incur in the management of the investment advisory account. For example, assume the Firm achieves a 10% annual return prior to the deduction of fees each year for a period of 10 years. If an annual investment management fee of 1% of assets under management for the 10 year period were charged, the resulting annual average return after fees would be reduced to 8.9%. Silvercrest's standard annual asset-based fee schedule is described in Part 2 of its Form ADV, and outsourced manager's standard annual asset-based fee schedules are described in Part 2 of each of their Form ADVs. Actual fees and expenses will vary depending on a variety of factors, including the size of a particular account. Generally, investment management fees are charged based upon the size of the portfolio, computed quarterly. An investor's actual result would be different from those portrayed in the models. A reader should not infer or assume that any portfolio is appropriate to meet the objectives, situation or needs of a particular investor, as the implementation of any financial strategy, and the purchase or sale of any security, should only be made after consultation with an attorney, tax advisor and investment advisor. Past performance is no indication of future results. The benchmark is a composite of the S&P 500 Index, the Barclays Capital Aggregate Index, and the HFRI Fund of Funds Composite Index. Each index's blend is rebalanced annually. Index returns do not reflect a deduction for fees or expenses. Investors cannot invest directly in any of these indices.



The market indices used to compare to the performance of our strategies are as follows:

The Barclays Capital Aggregate Index is an index of investment grade government and corporate bonds with a maturity of more than one year.

34 -------------------------------------------------------------------------------- The S&P 500 Index is a capitalization-weighted, unmanaged index that measures 500 widely held US common stocks of leading companies in leading industries, representative of the broad US equity market.



The HFRI Fund of Funds Composite Index is an index that is equal weighted, net of fees, and comprised of over 1,500 funds which report to Hedge Fund Research.

Three Months Ended June 30, 2014 versus Three Months Ended June 30, 2013

Our total revenue increased by $2.7 million, or 19.0%, to $17.2 million for the three months ended June 30, 2014, from $14.5 million for the three months ended June 30, 2013. This increase was driven primarily by growth in our management and advisory fees as a result of increased assets under management. Assets under management increased by $2.8 billion, or 20.1%, to $16.7 billion at June 30, 2014 from $13.9 billion at June 30, 2013. Compared to the three months ended June 30, 2013, there was an increase of $0.4 billion of client inflows, an increase of $0.2 billion in client outflows, and an increase of $0.1 billion in market appreciation. Our market appreciation during the three months ended June 30, 2014 constituted a 3.1% rate of increase in our total assets under management compared to March 31, 2014. Our growth in assets under management for the three months ended June 30, 2014 was attributable to an increase of $0.5 billion in discretionary assets under management. The growth in our discretionary assets under management was primarily driven by an increase in separately managed accounts. An increase in the concentration of equity securities, which are included in discretionary assets under management and whose fee rates are higher than those of other investments, was the primary driver of increased management and advisory fees revenue for the three months ended June 30, 2014 compared to the prior period. Sub-advised fund management revenue remained flat for the three months ended June 30, 2014 as compared to the same period in the prior year. Proprietary fund management revenue remained flat for the three months ended June 30, 2014 as compared to the same period in the prior year. With respect to our discretionary assets under management, equity assets experienced growth of 6.0% during the three months ended June 30, 2014, while fixed income assets decreased by 2.4% during the same period. For the three months ended June 30, 2014, most of our growth came from our focused value, SMID cap value and equity income strategies with composite returns of 6.3%, 5.7% and 5.7%, respectively. As of June 30, 2014, the composition of our assets under management was 67% in discretionary assets, which includes both separately managed accounts and proprietary and sub-advised funds, and 33% in non-discretionary assets which represent assets on which we provide portfolio reporting but do not have investment discretion.



Six Months Ended June 30, 2014 versus Six Months Ended June 30, 2013

Our total revenue increased by $5.7 million, or 20.6%, to $33.9 million for the six months ended June 30, 2014, from $28.2 million for the six months ended June 30, 2013. This increase was driven primarily by growth in our management and advisory fees as a result of increased assets under management. Assets under management increased by $2.8 billion, or 20.1%, to $16.7 billion at June 30, 2014 from $13.9 billion at June 30, 2013. Compared to the six months ended June 30, 2013, there was a decrease of $2.2 billion of client inflows, a decrease of $1.0 billion in client outflows, and a decrease of $0.6 billion in market appreciation. For the six months ended June 30, 2014 assets under management increased by $1.0 billion, or 6.4%, to $16.7 billion at June 30, 2014 from $15.7 billion at December 31, 2013. Our market appreciation during the six months ended June 30, 2014 constituted a 2.6% rate of increase in our total assets under management compared to December 31, 2013. Our growth in assets under management for the six months ended June 30, 2014 was attributable to an increase of $1.0 billion in discretionary assets under management, primarily related to the Richmond expansion. The growth in our discretionary assets under management was primarily driven by an increase in separately managed accounts. An increase in the concentration of equity securities, which are included in discretionary assets under management and whose fee rates are higher than those of other investments, was the primary driver of increased management and advisory fees revenue for the three months ended June 30, 2014 compared to the prior year. Sub-advised fund management revenue increased by $0.1 million to $0.9 million for the six months ended June 30, 2014 from $0.8 million for the same period in the prior year as a result of the Ten-Sixty Asset Management, LLC acquisition. Proprietary fund management revenue decreased by $0.2 million to $3.5 million for the six months ended June 30, 2014 from $3.7 million for the same period in the prior year as a result of fund redemptions and market depreciation. With respect to our discretionary assets under management, equity and fixed income assets experienced growth of 11.6% and 12.3%, respectively, during the six months ended June 30, 2014. For the six months ended June 30, 2014, most of our growth came from our SMID cap value, equity income and focused value strategies with composite returns of 7.8%, 8.6% and 7.8%, respectively. As of June 30, 2014, the composition of our assets under management was 67% in discretionary assets, which includes both separately managed accounts and proprietary and sub-advised funds, and 33% in non-discretionary assets which represent assets on which we provide portfolio reporting but do not have investment discretion. 35 --------------------------------------------------------------------------------



Expenses

Our expenses for the three and six months ended June 30, 2014 and 2013 are set forth below: For the Three Months Ended June 30, (in thousands) 2014 2013 2014 vs. 2013 ($) 2014 vs. 2013 (%) Compensation and benefits (1) $ 9,761$ 5,925 $ 3,836 64.7 % General, administrative and other 3,222 2,722 500 18.4 % Total expenses 12,983 $ 8,647 $ 4,336 50.1 % For the Six Months Ended June 30, (in thousands) 2014 2013 2014 vs. 2013 ($) 2014 vs. 2013 (%) Compensation and benefits (1) $ 19,472$ 11,125 $ 8,347 75.0 % General, administrative and other 6,436 5,434 1,002 18.4 % Total expenses 25,908 $ 16,559 $ 9,349 56.5 %



(3) For the three and six months ended June 30, 2014, $4,326 and $8,440,

respectively, of partner incentive payments was included in cash

compensation and benefits expense.

Our expenses are driven primarily by our compensation costs. The table included in "-Expenses-Compensation and Benefits Expense" describes the components of our compensation expense for the three and six months ended June 30, 2014 and 2013. Other expenses, such as rent, professional service fees, data-related costs, and sub-advisory fees incurred are included in our general and administrative expenses.



Three Months Ended June 30, 2014 versus Three Months Ended June 30, 2013

Total expenses increased by $4.3 million, or 50.1%, to $13.0 million for the three months ended June 30, 2014 from $8.7 million for the three months ended June 30, 2013. This increase was primarily attributable to increases in compensation and benefits expense of $3.8 million, as well as increases in in general and administrative expenses of $0.5 million. Compensation and benefits expense increased by $3.8 million, or 64.7%, to $9.8 million for the three months ended June 30, 2014 from $5.9 million for the three months ended June 30, 2013. The increase was primarily attributable to an increase in the accrual for partner incentive bonuses of $4.3 million as a result of the recognition of partner incentive payments as compensation expense and an increase in salaries expense of $0.1 million, as a result of both merit increases and increased headcount. This was partially offset by a decrease in accrued employee incentive bonuses of $0.5 million and a decrease in equity-based compensation expense of $0.1 million primarily as a result of lower levels of deferred equity units due to vesting in prior periods. General and administrative expenses increased by $0.5 million, or 18.4%, to $3.2 million for the three months ended June 30, 2014 from $2.7 million for the three months ended June 30, 2013. This increase was primarily due to an increase in occupancy and related expenses of $0.2 million as a result of a reduction subtenant rental income earned for the three months ended June 30, 2014 as compared to the same period in the prior year, an increase in sub-advisory fees of $0.1 million in conjunction with increased revenue levels, an increase in investor relations costs of $0.1 million and an increase in insurance costs of $0.1 million.



Six Months Ended June 30, 2014 versus Six Months Ended June 30, 2013

Total expenses increased by $9.3 million, or 56.5%, to $25.9 million for the six months ended June 30, 2014 from $16.6 million for the six months ended June 30, 2013. This increase was primarily attributable to increases in compensation and benefits expense and general and administrative expenses of $8.3 million and $1.0 million, respectively. Compensation and benefits expense increased by $8.3 million, or 75.0%, to $19.4 million for the six months ended June 30, 2014 from $11.1 million for the six months ended June 30, 2013. The increase was primarily attributable to an increase in the accrual for partner incentive bonuses of $8.4 million as a result of the recognition of partner incentive payments as compensation expense and an increase in salaries and benefits expense of $0.4 million and $0.1 million, respectively, as a result of both merit increases and increased headcount. This was partially offset by decreased equity-based compensation expense of $0.3 million primarily due to lower levels of deferred equity units due to vesting in prior periods, and a decrease in accrued employee incentive bonuses of $0.3 million. General and administrative expenses increased by $1.0 million, or 18.4%, to $6.4 million for the six months ended June 30, 2014 from $5.4 million for the six months ended June 30, 2013. This increase was primarily due to an increase in occupancy expense of $0.4 million as a result of a reduction subtenant rental income earned for the six months ended June 30, 2014 as compared to the 36 -------------------------------------------------------------------------------- same period in the prior year, an increase in the provision for doubtful accounts of $0.2 million in conjunction with increased revenue levels, and increase in client reimbursement costs of $0.1 million, an increase in investor relations costs of $0.1 million, an increase in business taxes of $0.1 million and an increase in insurance costs of $0.1 million.



Other Income (Expense), Net

For the Three Months Ended June 30, (in thousands) 2014 2013 2014 vs. 2013 ($) 2014 vs. 2013 (%) Other income, net $ - $ 29 $ (29 ) -100.0 % Interest income 16 22 (6 ) -27.3 % Interest expense (128 ) (71 ) (57 ) -80.3 %



Total other (expense) income, net $ (112 )$ (20 ) $

(92 ) -460.0 % For the Six Months Ended June 30, (in thousands) 2014 2013 2014 vs. 2013 ($) 2014 vs. 2013 (%) Other income, net $ 8 $ 57 $ (49 ) -86.0 % Interest income 36 49 (13 ) -26.5 % Interest expense (255 ) (108 ) (147 ) -136.1 %



Total other (expense) income, net $ (211 )$ (2 ) $

(209 ) NM NM - Not meaningful _______________________



Three Months Ended June 30, 2014 versus Three Months Ended June 30, 2013

Other (expense) income, net decreased by $0.1 million to other expense, net of ($0.1) million for the three months ended June 30, 2014 from other expense, net of ($20) thousand for the three months ended June 30, 2013 primarily due to an increase in interest expense of $57 thousand. Interest expense increased for the three months ended June 30, 2014 as compared to the prior year as a result of borrowings under our credit facility, the issuance of a note related to the Ten-Sixty acquisition and notes issued to two former partners in conjunction with their share redemptions prior to our initial public offering.



Six Months Ended June 30, 2014 versus Six Months Ended June 30, 2013

Other income (expense), net decreased by $0.2 million to other expense, net of ($0.2) million for the six months ended June 30, 2014 from other expense, net of ($2) thousand for the six months ended June 30, 2013 primarily due to an increase in interest expense of $0.1 million as a result of borrowings under our credit facility, the issuance of a note related to the Ten-Sixty acquisition and notes issued to two former partners in conjunction with their share redemptions prior to our initial public offering.



Provision for Income Taxes

Three Months Ended June 30, 2014 versus Three Months Ended June 30, 2013

The provision for income taxes was $1.3 million and $0.3 million for the three months ended June 30, 2014 and 2013, respectively. The change was a result of both the recognition of corporate income tax expense related to the change in our corporate structure and expense related to our tax receivable agreement in addition to an increase in taxable income. Our provision for income taxes as a percentage of income before provision for income taxes for the three months ended June 30, 2014 and 2013 was 32.3% and 5.8%, respectively.



Six Months Ended June 30, 2014 versus Six Months Ended June 30, 2013

The provision for income taxes was $2.8 million and $0.7 million for the six months ended June 30, 2014 and 2013, respectively. The change was a result of both the recognition of corporate income tax expense related to the change in our corporate structure and expense related to our tax receivable agreement in addition to a projected increase in taxable income. Our provision for income taxes as a percentage of income before provision for income taxes for the six months ended June 30, 2014 and 2013 was 35.6% and 5.8%, respectively. 37 --------------------------------------------------------------------------------



Supplemental Non-GAAP Financial Information

To provide investors with additional insight, promote transparency and allow for a more comprehensive understanding of the information used by management in its financial and operational decision-making, we supplement our condensed consolidated financial statements presented on a basis consistent with U.S. generally accepted accounting principles, or GAAP, with Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Earnings Per Share which are non-GAAP financial measures of earnings.



· EBITDA represents net income before provision for income taxes, interest

income, interest expense, depreciation and amortization. We define Adjusted

EBITDA as EBITDA without giving effect to the Delaware franchise tax,

professional fees associated with acquisitions or financing transactions,

losses on forgiveness of notes receivable from our principals, gains on

extinguishment of debt or other obligations related to acquisitions,

impairment charges and losses on disposals or abandonment of assets and

leaseholds, client reimbursements and fund redemption costs, severance and

other similar expenses, but including partner incentive allocations, prior

to our initial public offering, as an expense.

· Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total

revenue.

· Adjusted Net Income represents recurring net income without giving effect to

professional fees associated with acquisitions or financing transactions,

losses on forgiveness of notes receivable from our principals, gains on

extinguishment of debt or other obligations related to acquisitions,

impairment charges and losses on disposals or abandonment of assets and

leaseholds, client reimbursements and fund redemption costs, severance and

other similar expenses, but including partner incentive allocations, prior

to our initial public offering, as an expense. Furthermore, Adjusted Net

Income includes income tax expense assuming a corporate rate of 40%.

· Adjusted Earnings Per Share represents Adjusted Net Income divided by the

actual Class A and Class B shares outstanding as of the end of the reporting

period for basic Adjusted Earnings Per Share, and to the extent dilutive, we

add unvested deferred equity units and performance units to the total shares

outstanding to compute diluted Adjusted Earnings Per Share. As a result of

our structure, which includes a non-controlling interest, we feel that it is

important to management and investors to supplement our consolidated

financial statements presented on a GAAP basis with Adjusted Earnings Per

Share, a non-GAAP financial measure of earnings, as this measure provides a

perspective of recurring earnings per share of the Company as a whole as opposed to being limited to our Class A common stock. These adjustments, and the non-GAAP financial measures that are derived from them, provide supplemental information to analyze our operations between periods and over time. Investors should consider our non-GAAP financial measure in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. 38 -------------------------------------------------------------------------------- The following tables contain reconciliations of net income to Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share (amounts in thousands except per share amounts). Adjusted EBITDA Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013

Reconciliation of non-GAAP financial measure: Net income $ 2,798 5,467 $ 5,039 10,929 Provision for income taxes 1,333 338 2,788 667 Delaware Franchise Tax 45 - 90 - Interest expense 128 71 255 108 Interest income (16 ) (22 ) (24 ) (49 ) Partner incentive allocations (A) - (3,120 ) - (6,000 ) Depreciation and amortization 501 503 982 954 Equity-based compensation 260 408 775 1,036 Other adjustments (B) 59 748 184 885 Adjusted EBITDA $ 5,108$ 4,393$ 10,089$ 8,530 Adjusted EBITDA Margin 29.7 % 30.4 % 29.7 % 30.3 % Adjusted Net Income and Adjusted Earnings Per Share Reconciliation of non-GAAP financial measure: Net income $ 2,798$ 5,467$ 5,039$ 10,929 GAAP Provision for income taxes 1,333 338 2,788 667 Delaware Franchise Tax 45 - 90 - Partner incentive allocations (A) - (3,120 ) - (6,000 ) Other adjustments (B) 59 748 184 885 Adjusted earnings before provision for income taxes 4,235 3,433 8,101 6,481 Adjusted provision for income taxes: Adjusted provision for income taxes (40% assumed tax rate) (1,694 ) (1,373 ) (3,240 ) (2,592 ) Adjusted net income $ 2,541$ 2,060$ 4,861$ 3,889 Adjusted earnings per share/unit: Basic $ 0.21 $ 0.18 $ 0.40$ 0.35 Diluted $ 0.21 $ 0.18 $ 0.39$ 0.33 Shares/units outstanding: Basic Class A shares outstanding 7,524 4,791 7,524 4,791 Basic Class B shares/units outstanding 4,704 6,459 4,704 6,459 Total basic shares/units outstanding 12,228 11,250 12,228 11,250 Diluted Class A shares outstanding 7,524 4,791 7,524 4,791 Diluted Class B shares/units outstanding (C) 4,847 6,888 4,847 6,888 Total diluted shares/units outstanding 12,371 11,679 12,371 11,679



(A) Partner incentive allocations, prior to our initial public offering, were

treated as distributions of net income and recorded when paid. Upon the

completion of our reorganization and initial public offering, we account for

partner incentive payments as an expense in our Statement of Operations and

have reflected the related adjustments in our historical financial

information. Accordingly, this has the effect of increasing compensation

expense relative to the amounts that have been recorded historically in our

financial statements.

(B) Other adjustments consist of the following:

39 --------------------------------------------------------------------------------

Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Loss on sub-lease (a) $ - $ (21 ) $ - $ (42 ) Client reimbursement - - 125 - IPO professional fees - (28 ) - (20 )

IPO-related non-principal bonuses - 754

- 754 Acquisition costs (b) - 23 - 74 Other (c) 59 20 59 119 Total other adjustments $ 59$ 748$ 184$ 885



(a) Reflects the amortization recognized, on a present value basis, between the

per square foot rental rate for our Company's primary lease and a sub-lease

that we signed in 2011 with a sub-tenant for our headquarters in New York.

(b) Reflects the legal and accounting fees associated with the closing of the

Ten-Sixty acquisition in 2013. Also reflects transition expenses related to

integrating the Ten-Sixty acquisition in 2013.

(c) In 2013, represents the accrual of Quarterly Income Payments, as defined in

the MW Commodity Advisors, LLC purchase agreement. In 2014, represents the

accrued $18 earnout related to our Richmond expansion and $41 of

professional fees related to our shelf registration filing.

(C) Includes 52,188 and 191,828 unvested deferred equity units as of June 30,

2014 and 2013, respectively. Also, 90,959 and 237,089 performance units,

which are conditionally issuable units that would be issuable if June 30,

2014 and 2013, respectively, was the end of the contingency period, are included.



Liquidity and Capital Resources

Historically, the working capital needs of our business have primarily been met through cash generated by our operations. We expect that our cash and liquidity requirements in the next twelve months will be met primarily through cash generated by our operations. On June 24, 2013, the subsidiaries of Silvercrest L.P. entered into a $15.0 million credit facility with City National Bank. The subsidiaries of Silvercrest L.P. are the borrowers under such facility and Silvercrest L.P. guarantees the obligations of its subsidiaries under the credit facility. The credit facility is secured by certain assets of Silvercrest L.P. and its subsidiaries. The credit facility consists of a $7.5 million delayed draw term loan that matures on June 24, 2020 and a $7.5 million revolving credit facility that matures on December 24, 2016. The loan bears interest at either (a) the higher of the prime rate plus a margin of 0.05 percentage points and 2.5% or (b) the LIBOR rate plus 3 percentage points, at the borrowers' option. On June 28, 2013, the borrowers borrowed $7 million under the revolving credit facility to partially fund a $10.0 million distribution that was made in July 2013 to the existing limited partners of Silvercrest L.P. prior to the closing of our initial public offering. As of June 30, 2014, $3.0 million of borrowings remained outstanding on the revolving credit facility. As of June 30, 2014, no amount has been drawn on the term loan credit facility and the borrowers may draw up to the full amount of the term loan through June 25, 2018. Borrowings under the term loan on or prior to June 24, 2015 will be payable in twenty equal quarterly installments. Borrowings under the term loan after June 24, 2015 will be payable in equal quarterly installments through the maturity date. The new credit facility contains restrictions on, among other things, (i) incurrence of additional debt, (ii) creating liens on certain assets, (iii) making certain investments, (iv) consolidating, merging or otherwise disposing of substantially all of our assets, (v) the sale of certain assets, and (vi) entering into transactions with affiliates. In addition, the credit facility contains certain financial covenants including a test on discretionary assets under management, maximum debt to EBITDA and a fixed charge coverage ratio. The credit facility contains customary events of default, including the occurrence of a change in control which includes a person or group of persons acting together acquiring more than 30% of total voting securities of Silvercrest. Any undrawn amounts under this facility would be available to fund future acquisitions or for working capital purposes, if needed. We were in compliance with the covenants under the credit facility as of June 30, 2014. Our ongoing sources of cash will primarily consist of management fees and family office services fees, which are principally collected quarterly. We will primarily use cash flow from operations to pay compensation and related expenses, general and administrative expenses, income taxes, debt service, capital expenditures, distributions to Class B unit holders and dividends on shares of our Class A common stock. 40 -------------------------------------------------------------------------------- Seasonality typically affects cash flow since the first quarter of each year includes as a source of cash, the prior year's annual performance fee payments, if any, from our various funds and external investment strategies and, as a use of cash, the prior fiscal year's incentive compensation. We believe that we have sufficient cash from our operations to fund our operations and commitments for the next twelve months.



The following table sets forth certain key financial data relating to our liquidity and capital resources as of June 30, 2014 and December 31, 2013.

As of June 30, December 31, (in thousands) 2014 2013 Cash and cash equivalents $ 21,438$ 27,122 Accounts receivable $ 4,098$ 5,405 Due from Silvercrest Funds $ 3,599$ 2,653 We anticipate that distributions to the limited partners of Silvercrest L.P. will continue to be a material use of our cash resources and will vary in amount and timing based on our operating results and dividend policy. We pay and intend to continue paying quarterly cash dividends to holders of our Class A common stock. We are a holding company and have no material assets other than our ownership of interests in Silvercrest L.P. As a result, we will depend upon distributions from Silvercrest L.P. to pay any dividends to our Class A stockholders. We expect to cause Silvercrest L.P. to make distributions to us in an amount sufficient to cover dividends, if any, declared by us. Our dividend policy has certain risks and limitations, particularly with respect to liquidity. Although we expect to pay dividends according to our dividend policy, we may not pay dividends according to our policy, or at all, if, among other things, we do not have the cash necessary to pay our intended dividends or our subsidiaries are prevented from making a distribution to us under the terms of our current credit facility or any future financing. To the extent we do not have cash on hand sufficient to pay dividends, 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. Our purchase of Class B units in Silvercrest L.P. that occurred concurrently with the consummation of our initial public offering, and the future exchanges of Class B units of Silvercrest L.P., are expected to result in increases in our share of the tax basis of the tangible and intangible assets of Silvercrest L.P. at the time of our acquisition and these future exchanges, 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 are expected to reduce the amount of tax that we would otherwise be required to pay in the future. In June 2013, we entered into a tax receivable agreement with the current principals of Silvercrest L.P. and any future employee-holders of Class B units pursuant to which we agreed to pay them 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we actually realize as a result of these increases in tax basis and certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments thereunder. The timing of these payments is currently unknown. The payments to be made pursuant to the tax receivable agreement will be a liability of Silvercrest and not Silvercrest L.P., and thus this liability has been recorded as an "other liability" on our Condensed Consolidated Statement of Financial Condition. For purposes of the tax receivable agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that we would have been required to pay had there been no increase in our share of the tax basis of the tangible and intangible assets of Silvercrest L.P. The actual increase in tax basis, as well as the amount and timing of any payments under the tax receivable agreement, will vary depending upon a number of factors, including the timing of exchanges, the price of shares of our Class A common stock at the time of the exchange, the extent to which such exchanges are taxable, the amount and timing of our income and the tax rates then applicable. Nevertheless, we expect that as a result of the size of the increases in the tax basis of our tangible and intangible assets, the payments that we may make under the tax receivable agreement likely will be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize the full tax benefit of the increased depreciation and amortization of our assets, we expect that future payments to the selling principals of Silvercrest L.P. in respect of our purchase of Class B units from them will aggregate approximately $15.3 million. Future payments to current principals of Silvercrest L.P. and future holders of Class B units in respect of subsequent exchanges would be in addition to these amounts and are expected to be substantial. We intend to fund required payments pursuant to the tax receivable agreement from the distributions received from Silvercrest L.P. 41 --------------------------------------------------------------------------------



Cash Flows

The following table sets forth our cash flows for the six months ended June 30, 2014 and 2013. Operating activities consist of net income subject to adjustments for changes in operating assets and liabilities, depreciation, and equity-based compensation expense. Investing activities consist primarily of acquiring and selling property and equipment, distributions received from investments in investment funds, and cash paid as part of business acquisitions. Financing activities consist primarily of contributions from partners, distributions to partners, the issuance and payments on partner notes, other financings, and earnout payments related to business acquisitions. Six Months Ended June 30, (in thousands) 2014 2013



Net cash provided by operating activities $ 2,428$ 14,929

Net cash used in investing activities (1,969 )



(3,438 )

Net cash used in financing activities (6,143 ) (12,235 ) Net change in cash $ (5,684 )$ (744 ) Operating Activities



Six Months Ended June 30, 2014 versus Six Months Ended June, 2013

Operating activities provided $2.4 million for six months ended June 30, 2014 and provided $14.9 million for the six months ended June 30, 2013. This difference is primarily the result of decreased net income and accrued compensation of $5.9 million and $6.6 million, respectively, as a result of the payment of partner incentives which are part of compensation expense subsequent to our initial public offering as compared to the same period in the prior year.



Investing Activities

Six Months Ended June 30, 2014 versus Six Months Ended June 30, 2013

For the six months ended June 30, 2014 and 2013, investing activities used $2.0 million and $3.4 million, respectively. The decrease in the use of cash was primarily the result of $2.5 million of cash paid at the closing of the Ten-Sixty acquisition during the six months ended June 30, 2013 and a decrease in restricted certificates of deposit and escrow of $0.2 million, partially offset by an increase in earnout payments of $1.0 million related to the Marathon Capital Group, LLC acquisition made during the six months ended June 30, 2014. Financing Activities



Six Months Ended June 30, 2014 versus Six Months Ended June 30, 2013

For the six months ended June 30, 2014 and 2013, financing activities used $6.1 million and $12.2 million, respectively. The decrease in net cash used in financing activities from 2013 to 2014 was primarily the result of decreased distributions to partners of $13.9 million in 2014 as compared to 2013 as a result of the treatment of partner incentive payments as compensation expense instead of distributions subsequent to our initial public offering and lower notes payable repayments of $0.4 million. The previous decreases were partially offset by the payment of dividends in 2014 of $1.8 million and borrowings under credit facility of $7.0 million that occurred in 2013. We anticipate that distributions to principals of Silvercrest L.P. will continue to be a material use of our cash resources, and will vary in amount and timing based on our operating results and dividend policy. As described below, we have outstanding fixed rate notes payable to Ten-Sixty and Milbank related to the Ten-Sixty and Milbank acquisitions, and variable rate notes issued to former principals to redeem units held by them under which we exercised our call right upon their termination. Furthermore, we have an outstanding balance of $3.0 million on our revolving credit facility. The aggregate principal amount of the note related to the Ten-Sixty acquisition is payable in quarterly installments from June 30, 2014 through March 31, 2017 of $0.1 million each. As of June 30, 2014, $1.0 million remained outstanding on the note payable related to the Ten-Sixty acquisition. The principal amount outstanding under this note bears interest at the rate of 5% per annum. There was no accrued but unpaid interest on the notes payable related to the Ten-Sixty acquisition as of June 30, 2014. 42

-------------------------------------------------------------------------------- As of December 31, 2013, $1.1 million remained outstanding on the note payable related to the Ten-Sixty acquisition. There was no accrued but unpaid interest on the notes payable related to the Ten-Sixty acquisition as of December 31, 2013. The aggregate principal amount of the notes related to the Milbank acquisition matures after two remaining annual principal installments payable on each of November 1, 2014 and 2015 in the approximate amounts of $1.0 million and $0.6 million, respectively, together with all accrued and unpaid interest. If specified conditions are not met by Milbank prior to November 1, 2014, then the principal payment due on November 1, 2015 will be reduced to $0.1 million. The principal amount outstanding under this note bears interest at the rate of 5% per annum. As of June 30, 2014, $1.5 million remained outstanding on the notes payable related to the Milbank acquisition. Accrued but unpaid interest on the notes payable related to the Milbank acquisition was approximately $51 thousand as of June 30, 2014. As of December 31, 2013, $1.5 million remained outstanding on the notes payable related to the Milbank acquisition. Accrued but unpaid interest on the notes payable related to the Milbank acquisition was approximately $13 thousand as of December 31, 2013.



As of June 30, 2014 and December 31, 2013$3.0 million in borrowings was outstanding on our revolving credit facility with City National Bank.

On June 3, 2013, we redeemed units from two of our former principals. In conjunction with the redemption, we issued promissory notes with an aggregate principal amount of approximately $5.3 million, and such principal amount is subject to downward adjustment to the extent of any breach by the holder of such note. The principal amount of the notes are payable in four equal annual installments on each of June 3, 2014, 2015, 2016 and 2017. The principal amount outstanding under these notes bears interest at the U.S. Prime Rate plus 1% in effect at the time payments are due. The Company elected not to make the June 3, 2014 payment as the Company is currently assessing the note covenants and whether any reduction to these notes can be made. As of June 30, 2014 and December 31, 2013, $5.3 million and $5.6 million, respectively, remained outstanding on the notes issued to former principals. Accrued but unpaid interest on these notes issued to former principals was approximately $0.2 million and $0.1 million as of June 30, 2014 and December 31, 2013, respectively. The principal amounts outstanding under these notes bear interest at the U.S. Prime Rate plus 1% in effect at the time payments are due.



Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2014 or December 31, 2013.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies during the three months ended March 31, 2014 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission on March 20, 2014. Revenue Recognition Investment advisory fees are typically billed quarterly in advance at the beginning of the quarter or in arrears after the end of the quarter, based on a contractual percentage of the assets managed. Family office services fees are also typically billed quarterly in advance at the beginning of the quarter or in arrears after the end of the quarter based on a contractual percentage of the assets managed or upon a contractually agreed-upon flat fee arrangement. Revenue is recognized on a ratable basis over the period in which services are performed. We account for performance-based revenue in accordance with ASC 605-20-S99, Accounting for Management Fees Based on a Formula, by recognizing performance fees and allocations as revenue only when it is certain that the fee income is earned and payable pursuant to the relevant agreements. In certain arrangements, we are only entitled to receive performance fees and allocations when the return on assets under management exceeds certain benchmark returns or other performance targets. We record performance fees and allocations as a component of revenue. 43

-------------------------------------------------------------------------------- Because the majority of our revenues are earned based on assets under management that have been determined using fair value methods and since market appreciation/depreciation has a significant impact on our revenue, we have presented our assets under management using the GAAP framework for measuring fair value. That framework provides a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs based on company assumptions (Level 3). A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument's fair value measurement. The three levels within the fair value hierarchy are described as follows:



- Level 1-includes quoted prices (unadjusted) in active markets for identical

instruments at the measurement date. The types of financial instruments included in Level 1 include unrestricted securities, including equities listed in active markets.



- Level 2-includes inputs other than quoted prices that are observable for the

instruments, including quoted prices for similar instruments in active

markets, quoted prices for identical or similar instruments in markets that

are not active, or inputs other than quoted prices that are observable for

the instruments. The type of financial instruments in this category include

less liquid and restricted securities listed in active markets, securities

traded in other than active markets, government and agency securities, and

managed funds whose net asset value is based on observable inputs. - Level 3-includes one or more significant unobservable inputs. Financial instruments that are included in this category include assets under



management primarily comprised of investments in privately-held entities,

limited partnerships, and other instruments where the fair value is based on

unobservable inputs.

The table below summarizes the approximate amount of assets under management for the periods indicated for which fair value is measured based on Level 1, Level 2 and Level 3 inputs. Level 1 Level 2 Level 3 Total (in billions) June 30, 2014 AUM $ 11.3$ 3.2$ 2.2$ 16.7 December 31, 2013 AUM $ 10.5$ 2.9$ 2.3$ 15.7 As substantially all our assets under management are valued by independent pricing services based upon observable market prices or inputs, we believe market risk is the most significant risk underlying valuation of our assets under management, as discussed under the heading "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2013, which is accessible on the SEC's website at www.sec.gov and Item 3. "- Qualitative and Quantitative Disclosures Regarding Market Risk." The average value of our assets under management for the three and six months ended June 30, 2014 was approximately $16.5 billion and $16.2 billion, respectively. Assuming a 10% increase or decrease in our average assets under management and the change being proportionately distributed over all our products, the value would increase or decrease by approximately $1.7 million and $1.6 million for the three and six months ended June 30, 2014, respectively, which would cause an annualized increase or decrease in revenues of approximately $6.9 million and $6.8 million for the three and six months ended June 30, 2014, respectively, at a weighted average fee rate for the three and six months ended June 30, 2014 of 0.42% and 0.42%, respectively. The average value of our assets under management for the year ended December 31, 2013 was approximately $13.5 billion. Assuming a 10% increase or decrease in our average assets under management and the change being proportionately distributed over all our products, the value would increase or decrease by approximately $1.4 billion for the year ended December 31, 2013, which would cause an annualized increase or decrease in revenues of approximately $5.9 million for the year ended December 31, 2013, at a weighted average fee rate for the year ended December 31, 2013 of 0.44%.



Recently Issued Accounting Pronouncements

In June 2013, the FASB issued ASU 2013-08, "Financial Services-Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements." The ASU modifies the guidance in ASC 946 for determining whether an entity is an investment company, as well as the measurement and disclosure requirements for investment companies. The ASU also clarifies the characteristics of an investment company and requires an investment company to measure non-controlling ownership interests in other investment companies at fair value rather than using the equity method of accounting. The ASU does not change the current accounting where a noninvestment company parent retains the specialized accounting applied by an investment company subsidiary in consolidation. The ASU was effective for us on January 1, 2014. This adoption of this ASU did not have a material effect on our results of operations or financial position. 44



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In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers." ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on the consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor determined the effect of the standard on its ongoing financial reporting. In June 2014, the FASB issued Accounting Standards Update 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12")." ASU 2014-12 applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. That is the case when an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target could be achieved and still be eligible to vest in the award if and when the performance target is achieved. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period to be treated as a performance condition. A reporting entity should apply existing guidance ASC 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The adoption of this guidance, which is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, is not expected to have a material effect on the Company's Condensed Consolidated Statements of Financial Condition or Statements of Operations.


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