Investments

9 Months Ended

Aug. 31, 2017

Equity Method Investments and Joint Ventures [Abstract]

Investments

Investments

We have investments in Jefferies Finance, Jefferies LoanCore LLC (“Jefferies LoanCore”) and Epic Gas Ltd. (“Epic Gas”). Our investments in Jefferies Finance, Jefferies LoanCore and Epic Gas are accounted for under the equity method and are included in Loans to and investments in related parties in our Consolidated Statements of Financial Condition with our share of the investees’ earnings recognized in Other revenues in our Consolidated Statements of Earnings. We have limited partnership interests of 11% and 50% in Jefferies Capital Partners V L.P. and the SBI USA Fund L.P. (together, “JCP Fund V”), respectively, which are private equity funds managed by a team led by Brian P. Friedman, one of our directors and our Chairman of the Executive Committee. During fiscal 2016 and the nine months ended August 31, 2017, we had an investment in KCG Holdings, Inc. (“KCG”) that was accounted for at fair value by electing the fair value option available under U.S. GAAP and was included in Financial instruments owned, at fair value - Corporate equity securities in our Consolidated Statements of Financial Condition with changes in fair value recognized in Principal transaction revenues in our Consolidated Statements of Earnings.

Jefferies Finance

Jefferies Finance, a joint venture entity pursuant to an agreement with Massachusetts Mutual Life Insurance Company (“MassMutual”) and Barings, LLC, is a commercial finance company whose primary focus is the origination and syndication of senior secured debt to middle market and growth companies in the form of term and revolving loans. Loans are originated primarily through the investment banking efforts of Jefferies. Jefferies Finance may also originate other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. Jefferies Finance also purchases syndicated loans in the secondary market and acts as an investment advisor for various loan funds.

In July 2017, our equity commitment to Jefferies Finance was increased by $150.0 million to $750.0 million and we contributed equity of $74.8 million. At August 31, 2017, we and MassMutual each had equity commitments to Jefferies Finance of $750.0 million, for a combined total commitment of $1.5 billion. At August 31, 2017, we had funded $612.1 million of our $750.0 million commitment, leaving $137.9 million unfunded. The investment commitment is scheduled to expire on March 1, 2018 with automatic one year extensions absent a 60 day termination notice by either party.

Jefferies Finance has executed a Secured Revolving Credit Facility with us and MassMutual, to be funded equally, to support loan underwritings by Jefferies Finance. The Secured Revolving Credit Facility bears interest based on the interest rates of the related Jefferies Finance underwritten loans and is secured by the underlying loans funded by the proceeds of the facility. The total Secured Revolving Credit Facility is a committed amount of $500.0 million at August 31, 2017. Advances are shared equally between us and MassMutual. The facility is scheduled to mature on March 1, 2018 with automatic one year extensions absent a 60 day termination notice by either party. At August 31, 2017, we had funded $35.1 million of our $250.0 million commitment. The following summarizes the activity included in our Consolidated Statements of Earnings related to the Secured Revolving Credit Facility with Jefferies Finance (in millions):

	Three Months Ended   August 31,				Nine Months Ended   August 31,
	2017		2016		2017		2016
Interest income	$	0.2	$	—	$	2.5	$	—
Unfunded commitment fees	0.3		0.3		0.8		0.9

The following is a summary of selected financial information for Jefferies Finance (in millions):

	August 31, 2017		November 30, 2016
Our total equity balance	$	612.1	$	470.5

	Three Months Ended   August 31,				Nine Months Ended   August 31,
	2017		2016		2017		2016
Net earnings (loss)	$	40.8	$	22.8	$	133.5	$	(55.0	)

The following summarizes activity related to our other transactions with Jefferies Finance (in millions):

	Three Months Ended   August 31,					Nine Months Ended   August 31,
	2017			2016		2017			2016
Origination and syndication fee revenues (1)	$	104.2		$	19.0	$	243.5		$	42.1
Origination fee expenses (1)	—			—		2.5			1.6
CLO placement fee revenues (2)	0.8			1.3		4.7			1.3
Derivative gains (losses) (3)	(0.2		)	—		(0.6		)	1.3
Service fees (4)	7.9			7.2		37.4			35.8

(1) We engage in debt capital markets transactions with Jefferies Finance related to the originations and syndications of loans by Jefferies Finance. In connection with such services, we earned fees, which are recognized in Investment banking revenues in our Consolidated Statements of Earnings. In addition, we paid fees to Jefferies Finance in respect of certain loans originated by Jefferies Finance, which are recognized as Business development expenses in our Consolidated Statements of Earnings.

(2) We act as a placement agent for CLOs managed by Jefferies Finance, for which we recognized fees, which are included in Investment banking revenues in our Consolidated Statement of Earnings. At August 31, 2017 and November 30, 2016, we held securities issued by CLOs managed by Jefferies Finance, which are included in Financial instruments owned, and provided a guarantee whereby we are required to make certain payments to a CLO in the event that Jefferies Finance is unable to meet its obligations to the CLO.

(3) We have entered into participation agreements and derivative contracts with Jefferies Finance based upon certain securities issued by the CLO and we have recognized gains (losses) relating to the derivative contracts.

(4) Under a service agreement, we charge Jefferies Finance for services provided.

At August 31, 2017, we had a receivable from Jefferies Finance of $22.5 million included in Other Assets, and at November 30, 2016, we had a payable to Jefferies Finance of $5.8 million included in Accrued expenses and other liabilities, in our Consolidated Statements of Financial Condition.

Jefferies LoanCore

Jefferies LoanCore, a commercial real estate finance company, is a joint venture with the Government of Singapore Investment Corporation, the Canada Pension Plan Investment Board and LoanCore, LLC. Jefferies LoanCore originates and purchases commercial real estate loans throughout the U.S. and Europe. Jefferies LoanCore has aggregate equity commitments of $400.0 million. At August 31, 2017 and November 30, 2016, we had funded $130.6 million and $70.1 million, respectively, of our $194.0 million equity commitment and have a 48.5% voting interest in Jefferies LoanCore.

The following is a summary of selected financial information for Jefferies LoanCore (in millions):

	August 31, 2017		November 30, 2016
Our total equity balance	$	208.9	$	156.3

	Three Months Ended   August 31,				Nine Months Ended   August 31,
	2017		2016		2017		2016
Net earnings	$	3.8	$	13.4	$	12.4	$	36.1

The following summarizes activity related to our transactions with Jefferies LoanCore (in thousands):

	Three Months Ended   August 31,				Nine Months Ended   August 31,
	2017		2016		2017		2016
Interest income and fees (1)	$	—	$	1,803	$	589	$	6,943
Service fees (2)	47		47		142		142

(1) We enter into master repurchase agreements with Jefferies LoanCore and earn interest income and fees related to these agreements. At November 30, 2016, we had reverse repurchase agreements of $68.1 million in connection with these agreements.

(2) Under a service agreement, we charge Jefferies LoanCore for services provided.

Receivables from Jefferies LoanCore, included in Other assets in our Consolidated Statements of Financial Condition, were $16,000 at both August 31, 2017 and November 30, 2016.

We also enter into OTC foreign exchange contracts with Jefferies LoanCore. In connection with these contracts, we had $5.0 million and $8.3 million at August 31, 2017 and November 30, 2016, respectively, recorded in Payables—brokers, dealers and clearing organizations.

JCP Fund V

The amount of our investments in JCP Fund V included in Investments in managed funds in our Consolidated Statements of Financial Condition was $21.2 million and $29.1 million at August 31, 2017 and November 30, 2016, respectively. We account for these investments at fair value based on the NAV of the funds provided by the fund managers (see Note 2, Summary of Significant Accounting Policies in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2016). The following summarizes the results from these investments which are included in Asset management fees and investment gains (loss) from managed funds in our Consolidated Statements of Earnings (in millions):

	Three Months Ended   August 31,					Nine Months Ended   August 31,
	2017			2016		2017			2016
Net gains (losses) from our investments in JCP Fund V	$	(1.2	)	$	5.8	$	(9.1	)	$	(1.4	)

At August 31, 2017 and November 30, 2016, we were committed to invest equity of up to $85.0 million in JCP Fund V. At August 31, 2017 and November 30, 2016, our unfunded commitments relating to JCP Fund V was $10.1 million and $11.3 million, respectively.

The following is a summary of the Net decrease in net assets resulting from operations for 100.0% of JCP Fund V, in which we own effectively 35.2% of the combined equity interests (in thousands):

	Three Months Ended
	June 30, 2017 (1)			March 31, 2017 (1)			December 31, 2016 (1)			June 30, 2016 (1)		March 31, 2016 (1)			December 31, 2015 (1)
Net increase (decrease) in net assets resulting from operations	$	(552	)	$	(19,552	)	$	(2,294	)	$	17,137	$	(11,806	)	$	(7,886	)

(1) Financial information for JCP Fund V within our financial position at August 31, 2017 and November 30, 2016 and our results of operations for the three and nine months ended August 31, 2017 and August 31, 2016 is included based on the presented periods.

Epic Gas

On July 14, 2015, Jefferies purchased common shares of Epic Gas. In addition, one of our directors serves on the Board of Directors of Epic Gas and owns common shares of Epic Gas. At August 31, 2017, we own approximately 21.1% of the outstanding common stock of Epic Gas.

The following is a summary of selected financial information for Epic Gas (in millions):

	August 31,   2017		November 30, 2016
Our investment in Epic Gas	$	21.0	$	21.5

	Three Months Ended
	June 30, 2017 (1)			March 31, 2017 (1)			December 31, 2016 (1)			June 30, 2016 (1)			March 31, 2016 (1)			December 31, 2015 (1)
Net loss	$	(5.4	)	$	(3.4	)	$	(15.9	)	$	(0.9	)	$	(1.4	)	$	(11.4	)

(1) Financial information for Epic Gas within our results of operations for the three and nine months ended August 31, 2017 and August 31, 2016 is included based on the presented periods.

KCG

KCG was sold for $20.00 per share in cash on July 20, 2017. At November 30, 2016, we owned approximately 24% of the outstanding common stock of KCG. We elected to record our investment in KCG at fair value under the fair value option, as the investment was acquired as part of our capital markets activities. The valuation of our investment was based on the closing exchange price of KCG and included in Level 1 of the fair value hierarchy.

The following summarizes the changes in the fair value of our investment in KCG, which were recognized in Principal transactions revenues in our Consolidated Statements of Earnings (in millions):

	Three Months Ended   August 31,				Nine Months Ended   August 31,
	2017		2016		2017		2016
Net gains from our investment in KCG	$	2.2	$	6.1	$	93.4	$	24.6

The following is a summary of net earnings (loss) for KCG (in millions) reflecting available public financial information for KCG:

	Three Months Ended
	March 31, 2017		December 31, 2016		June 30, 2016		March 31, 2016		December 31, 2015
Net earnings (loss)	$	3.2	$	196.2	$	33.6	$	37.2	$	(3.0	)

We have separately entered into securities lending transactions with KCG, in the normal course of our capital markets activities. The following is a summary of the balances related to these activities (in millions):

	November 30, 2016
Securities borrowed	$	9.2
Securities loaned	9.2