Derivative Financial Instruments

6 Months Ended

Jun. 30, 2020

Derivative Financial Instruments

Derivative Financial Instruments

5. Derivative Financial Instruments

The Company has in place an economic hedge program that uses total return swap contracts to hedge market risk related to its investments in certain sponsored funds.  Certain of the consolidated sponsored funds may utilize derivative financial instruments within their portfolios in pursuit of their stated investment objectives.  We do not hedge for speculative purposes.

The Company was party to 11 total return swap contracts with a combined notional value of $221.8 million and 14 total return swap contracts with a combined notional value of $228.2 million as of June 30, 2020 and December 31, 2019, respectively. These derivative financial instruments are not designated as hedges for accounting purposes.  Changes in fair value of the total return swap contracts are recognized in Investment and other (loss) income in the Company’s consolidated statements of income.  

The counterparties of the total return swap contracts posted $3.8 million in cash collateral with the Company as of June 30, 2020, which is included in accounts payable in the Company’s consolidated balance sheet.  The Company posted $3.7 million in cash collateral with the counterparties of the total return swap contracts as of December 31, 2019, which is included in customers and other receivables in the Company’s consolidated balance sheet. The Company does not record its fair value in derivative transactions against the posted collateral.

The following table presents the fair value of the derivative financial instruments as of June 30, 2020 and December 31, 2019 and is calculated based on Level 2 inputs:

			June 30,		December 31,
	Balance sheet		2020		2019
	location	Fair value		Fair value
		(in thousands)
Total return swap contracts	Prepaid expenses and other current assets	$	2,145		—
Total return swap contracts	Other current liabilities		—		3,990
Net total return swap asset (liability)		$	2,145		(3,990)

The following is a summary of net (losses) gains recognized in income for the three and six months ended June 30, 2020 and June 30, 2019:

		Three months ended			Six months ended
	Income statement	June 30,			June 30,
	location		2020	2019		2020	2019
		(in thousands)			(in thousands)
Total return swap contracts	Investment and other income	$	(30,449)	(5,241)	$	11,620	(25,863)