Fair Value

6 Months Ended

12 Months Ended

Jun. 30, 2013

Dec. 31, 2012

11. Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. The three broad levels of fair value hierarchy are as follows:

•

Level 1—Quoted prices in active markets are available for identical assets or liabilities as of the reported date.

•

Level 2—Quoted prices in markets that are not active or other pricing inputs that are either directly or indirectly observable as of the reported date.

•

Level 3—Prices or valuation techniques that are both significant to the fair value measurement and unobservable as of the reported date. These financial instruments do not have two-way markets and are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables summarize the valuation of our financial instruments by pricing observability levels as of June 30, 2013 and December 31, 2012:

	June 30, 2013

	Level 1		Level 2		Level 3		Total
	(in thousands)
Money markets	$	275,458	$	—	$	—	$	275,458
U.S. Treasury Bills		—		824,061		—		824,061
U.K. Treasury Bills		—		117		—		117
Equity securities
Growth		116,486		—		—		116,486
Value		36,356		—		—		36,356
Multi-asset and asset allocation		50,195		—		—		50,195
Other(1)		56,399		—		—		56,399
Fixed Income securities
Taxable(2)		146,730		2,968		—		149,698
Tax-exempt(3)		5,227		795		—		6,022
Derivatives		1,619		6,007		—		7,626
Long exchange-traded options		13,074		—		—		13,074
Private equity		5,229		19,221		61,426		85,876

Total assets measured at fair value	$	706,773	$	853,169	$	61,426	$	1,621,368

Securities sold not yet purchased
Short equities—corporate	$	37,769	$	—	$	—	$	37,769
Short exchange-traded options		15,065		—		—		15,065
Derivatives		70		1,208		—		1,278

Total liabilities measured at fair value	$	52,904	$	1,208	$	—	$	54,112

	December 31, 2012

	Level 1		Level 2		Level 3		Total
	(in thousands)
Money markets	$	170,120	$	—	$	—	$	170,120
U.S. Treasury Bills		—		1,537,150		—		1,537,150
U.K. Treasury Bills		—		125		—		125
Equity securities
Growth		125,242		—		—		125,242
Value		36,126		—		—		36,126
Multi-asset and asset allocation		59,449		—		—		59,449
Other(1)		39,702		—		—		39,702
Fixed Income securities
Taxable(2)		177,635		1,219		—		178,854
Tax-exempt(3)		5,661		797		—		6,458
Derivatives		64		2,561		—		2,625
Long exchange-traded options		15,087		—		—		15,087
Private equity		7,695		—		76,953		84,648

Total assets measured at fair value	$	636,781	$	1,541,852	$	76,953	$	2,255,586

Securities sold not yet purchased
Short equities—corporate	$	54,370	$	—	$	—	$	54,370
Short exchange-traded options		9,197		—		—		9,197
Other		271		—		—		271
Derivatives		1,598		5,472		—		7,070

Total liabilities measured at fair value	$	65,436	$	5,472	$	—	$	70,908

(1): Primarily long positions in corporate equities traded through our options desk.
(2): Primarily corporate and government securities.
(3): Primarily municipal bonds.

Following is a description of the fair value methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

•

Money markets:  We invest excess cash in various money market funds that are valued based on quoted prices in active markets; these are included in Level 1 of the valuation hierarchy.

•

Treasury Bills:  We hold United States Treasury Bills, which are primarily segregated in a special reserve bank custody account as required by Rule 15c3-3 of the Exchange Act. We also hold United Kingdom Treasury Bills. These securities are valued based on quoted yields in secondary markets and are included in Level 2 of the valuation hierarchy.

•

Equity and fixed income securities:  Our equity and fixed income securities consist principally of company-sponsored mutual funds with net asset values and various separately managed portfolios consisting primarily of equity and fixed income securities with quoted prices in active markets, which are included in Level 1 of the valuation hierarchy. In addition, some securities are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy.

•

Derivatives:  We hold exchange-traded futures with counterparties that are included in Level 1 of the valuation hierarchy. In addition, we also hold currency forward contracts, interest rate swaps, credit default swaps, option swaps and total return swaps with counterparties that are included in Level 2 of the valuation hierarchy.

•

Options:  We hold long exchange-traded options that are included in Level 1 of the valuation hierarchy.

•

Private equity:  Generally, the valuation of private equity investments owned by our consolidated venture capital fund requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such investments. Private equity investments are valued initially at cost. The carrying values of private equity investments are adjusted either up or down from cost to reflect expected exit values as evidenced by financing and sale transactions with third parties, or when determination of a valuation adjustment is confirmed through ongoing review in accordance with our valuation policies and procedures. A variety of factors are reviewed and monitored to assess positive and negative changes in valuation including, but not limited to, current operating performance and future expectations of investee companies, industry valuations of comparable public companies, changes in market outlooks and the third party financing environment over time. In determining valuation adjustments resulting from the investment review process, particular emphasis is placed on current company performance and market conditions. For these reasons, which make the fair value of private equity investments unobservable, equity investments are included in Level 3 of the valuation hierarchy. However, if private equity investments owned by our consolidated venture capital fund become publicly traded, they are included in Level 1 of the valuation hierarchy. Also, if they contain trading restrictions, publicly traded equity investments are included in Level 2 of the valuation hierarchy. During the first quarter of 2012, one of our private securities went public and, due to a trading restriction period, $13.5 million was transferred from a Level 3 classification to a Level 2 classification. During the second quarter of 2013, one of our private securities went public and, due to a trading restriction period, $19.2 million was transferred from a Level 3 classification to a Level 2 classification.

•

Securities sold not yet purchased:  Securities sold not yet purchased, primarily reflecting short positions in equities and exchange-traded options, are included in Level 1 of the valuation hierarchy.

The following table summarizes the change in carrying value associated with Level 3 financial instruments carried at fair value:

	Three Months Ended June 30,						Six Months Ended June 30,

	2013			2012			2013			2012
	(in thousands)
Balance as of beginning of period	$	74,853		$	58,235		$	76,953		$	64,466
Transfers out		(19,220	)		—			(19,220	)		(13,548	)
Purchases		87			1,988			97			3,833
Sales		(34	)		(1,823	)		(34	)		(1,823	)
Realized gains (losses), net		(6,581	)		855			(6,581	)		855
Unrealized gains (losses), net		12,321			(1,347	)		10,211			4,125

Balance as of end of period	$	61,426		$	57,908		$	61,426		$	57,908

Transfers into and out of all levels of the fair value hierarchy are reflected at end-of-period fair values. Realized and unrealized gains and losses on Level 3 financial instruments are recorded in investment gains and losses in the condensed consolidated statements of income. A majority of the Level 3 investments are private equity investments owned by our consolidated venture capital fund, of which we own 10% and non-controlling interests own 90%.

The following table provides quantitative information about Level 3 fair value measurements:

	Fair Value as of June 30, 2013		Valuation Technique	Unobservable Input

	(in thousands)
Private Equity:
Technology, Media and Telecommunications	$	23,256	Market comparable	Revenue multiple	2.5–6.0
			companies	Discount rate	18	%
				Discount years	1.5
Healthcare and Cleantech	$	1,849	Market comparable	Revenue multiple(1)	0.7–62.5
			companies	R&D multiple(1)	1.0–32.4
				Discount for lack of marketability and risk factors	50–60	%

(1): The median for the Healthcare and Cleantech revenue multiple is 8.4; the median R&D multiple is 5.2.

The significant unobservable inputs used in the fair value measurement of the reporting entities' venture capital securities in the technology, media and telecommunications areas are enterprise value to revenue multiples and a discount rate to account for the time until the securities are likely monetized and various risk factors. Significant increases (decreases) in the enterprise value to revenue multiple inputs in isolation would result in a significantly higher (lower) fair value measurement. Significant increases (decreases) in the discount rate would result in a significantly lower (higher) fair value measurement.

The significant unobservable inputs used in the fair value measurement of the reporting entities' venture capital securities in the healthcare and cleantech areas are enterprise value to revenue multiples, enterprise value to R&D investment multiples, and a discount for lack of marketability and various risk factors. Significant increases (decreases) in the enterprise value to revenue multiple and enterprise value to R&D investment multiple inputs in isolation would result in a significantly higher (lower) fair value measurement. Significant increases (decreases) in the discount for lack of marketability and various risk factors in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the level of enterprise value to revenue multiple is accompanied by a directionally similar change in the assumption used for the enterprise value to R&D multiple. In addition, a change in the assumption used for the discount for lack of marketability and various risk factors is not correlated to changes in the assumptions used for the enterprise value to revenue multiple or the enterprise value to R&D investment multiple.

One of our private equity investments is a venture capital fund (fair value of $28.5 million and unfunded commitment of $12.2 million as of June 30, 2013) that invests in communications, consumer, digital media, healthcare and information technology markets. Another is an investment in a private equity fund focused exclusively on the energy sector (fair value of $7.7 million and unfunded commitment of $0.1 million as of June 30, 2013). In addition, one of the investments included in our consolidated private equity fund (fair value of $0.2 million and unfunded commitment of $0.2 million as of June 30, 2013) is a venture capital fund investing in clean energy, resource and energy efficiency and other sustainable industries. The fair value of each of these investments has been estimated using the capital account balances provided by the partnerships. The interests in these partnerships cannot be redeemed.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We did not have any material assets or liabilities that were measured at fair value for impairment on a nonrecurring basis during the three months ended June 30, 2013 or during the year ended December 31, 2012.

9. Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. The three broad levels of fair value hierarchy are as follows:

•

Level 1—Quoted prices in active markets are available for identical assets or liabilities as of the reported date.

•

Level 2—Quoted prices in markets that are not active or other pricing inputs that are either directly or indirectly observable as of the reported date.

•

Level 3—Prices or valuation techniques that are both significant to the fair value measurement and unobservable as of the reported date. These financial instruments do not have two-way markets and are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Assets Measured at Fair Value on a Recurring Basis

The following table summarizes the valuation of our financial instruments by pricing observability levels as of December 31, 2012 and 2011:

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)

Money markets	$	170,120	$	—	$	—	$	170,120
U.S. Treasury bills		—		1,537,150		—		1,537,150
U.K. Treasury bills		—		125		—		125
Equity securities
Growth		125,242		—		—		125,242
Value		36,126		—		—		36,126
Multi-asset and asset allocation		59,449		—		—		59,449
Other(1)		39,702		—		—		39,702
Fixed Income securities
Taxable(2)		177,635		1,219		—		178,854
Tax-exempt(3)		5,661		797		—		6,458
Derivatives		64		2,561		—		2,625
Long exchange-traded options		15,087		—		—		15,087
Private equity		7,695		—		76,953		84,648
Total assets measured at fair value	$	636,781	$	1,541,852	$	76,953	$	2,255,586

Securities sold not yet purchased
Short equities-corporate	$	54,370	$	—	$	—	$	54,370
Short exchange-traded options		9,197		—		—		9,197
Other		271		—		—		271
Derivatives		1,598		5,472		—		7,070
Total liabilities measured at fair value	$	65,436	$	5,472	$	—	$	70,908

	December 31, 2011
	Level 1		Level 2		Level 3		Total
	(in thousands)

Money markets	$	340,548	$	—	$	—	$	340,548
U.S. Treasury bills		—		1,277,944		—		1,277,944
U.K. Treasury bills		—		119		—		119
Equity securities
Growth		107,802		189		—		107,991
Value		60,096		9		—		60,105
Blend		118,208		—		—		118,208
Other(1)		45,583		—		—		45,583
Fixed Income securities
Taxable(2)		110,062		14,488		—		124,550
Tax-exempt(3)		15,366		743		—		16,109
Other		17		—		—		17
Derivatives		127		3,494		—		3,621
Long exchange-traded options		14,322		—		—		14,322
Private equity		11,592		—		64,466		76,058
Total assets measured at fair value	$	823,723	$	1,296,986	$	64,466	$	2,185,175

Securities sold not yet purchased
Short equities-corporate	$	34,469	$	—	$	—	$	34,469
Short exchange-traded options		3,567		—		—		3,567
Other		1,271		—		—		1,271
Derivatives		2,054		5,205		—		7,259
Total liabilities measured at fair value	$	41,361	$	5,205	$	—	$	46,566

(1)	Primarily long positions in corporate equities traded through our options desk.

(2)	Primarily corporate and government securities.

(3)	Primarily municipal bonds.

Following is a description of the fair value methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

•

Money markets: We invest excess cash in various money market funds that are valued based on quoted prices in active markets; these are included in Level 1 of the valuation hierarchy.

•

Treasury bills: We hold United States Treasury Bills, which are primarily segregated in a special reserve bank custody account as required by Rule 15c3-3 of the Exchange Act. We also hold United Kingdom Treasury Bills. These securities are valued based on quoted yields in secondary markets and are included in Level 2 of the valuation hierarchy.

•

Equity and fixed income securities: Our equity and fixed income securities consist principally of company-sponsored mutual funds with net asset values and various separately-managed portfolios consisting primarily of equity and fixed income securities with quoted prices in active markets, which are included in Level 1 of the valuation hierarchy. In addition, some securities are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy.

•

Derivatives: We hold exchange-traded futures with counterparties that are included in Level 1 of the valuation hierarchy. In addition, we hold currency forward contracts, interest rate swaps, credit default swaps, option swaps and total return swaps with counterparties that are included in Level 2 of the valuation hierarchy.

•

Options: We hold long exchange-traded options that are included in Level 1 of the valuation hierarchy.

•

Private equity: Generally, the valuation of private equity investments owned by our consolidated venture capital fund requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such investments. Private equity investments are valued initially at cost. The carrying values of private equity investments are adjusted either up or down from cost to reflect expected exit values as evidenced by financing and sale transactions with third parties, or when determination of a valuation adjustment is confirmed through ongoing review in accordance with our valuation policies and procedures. A variety of factors are reviewed and monitored to assess positive and negative changes in valuation including, but not limited to, current operating performance and future expectations of investee companies, industry valuations of comparable public companies, changes in market outlooks and the third party financing environment over time. In determining valuation adjustments resulting from the investment review process, particular emphasis is placed on current company performance and market conditions. For these reasons, which make the fair value of private equity investments unobservable, equity investments are included in Level 3 of the valuation hierarchy. However, if private equity investments owned by our consolidated venture capital fund become publicly-traded, they are included in Level 1 of the valuation hierarchy. Also, if they contain trading restrictions, publicly-traded equity investments are included in Level 2 of the valuation hierarchy. One of our private securities went public in the first quarter of 2011 and, due to a trading restriction period, $3.6 million was transferred from a Level 3 classification to a Level 2 classification. During the second quarter of 2011, the trading restriction period for one of our public securities lapsed, and, as a result, $20.6 million was transferred from a Level 2 classification to a Level 1 classification. During the third quarter of 2011, the trading restriction period for one of our public securities lapsed, and, as a result, $3.7 million was transferred from a Level 2 classification to a Level 1 classification. During the first quarter of 2012, one of our private securities went public and, due to a trading restriction period, $13.5 million was transferred from a Level 3 classification to a Level 2 classification. During the third quarter of 2012, the trading restriction period for one of our public securities lapsed and, as a result, $6.0 million was transferred from a Level 2 classification to a Level 1 classification.

•

Securities sold not yet purchased: Securities sold not yet purchased, primarily reflecting short positions in equities and exchange-traded options, are included in Level 1 of the valuation hierarchy.

The following table summarizes the change in carrying value associated with Level 3 financial instruments carried at fair value:

	December 31, 2012			December 31, 2011
	(in thousands)

Balance as of beginning of period	$	64,466		$	59,414
Transfers (out) in, net		(13,548	)		(3,588	)
Purchases		19,660			10,002
Sales		(1,823	)		(214	)
Realized gains (losses), net		(7,524	)		(3,106	)
Unrealized gains (losses), net		15,722			1,958
Balance as of end of period	$	76,953		$	64,466

Transfers into and out of all levels of the fair value hierarchy are reflected at end-of-period fair values. Realized and unrealized gains and losses on Level 3 financial instruments are recorded in investment gains and losses in the consolidated statements of income. A majority of the Level 3 investments are private equity investments owned by our consolidated venture capital fund, of which we own 10% and non-controlling interests own 90%.

The following table provides quantitative information about Level 3 fair value measurements:

	Fair Value as of December 31, 2012		Valuation Technique	Unobservable Input	Range
	(in thousands)
Private Equity:
Technology, Media and Telecommunications	$	23,256	Market comparable companies	Revenue multiple		2.5 – 6
				Discount rate		18	%
				Discount years		1 – 2
Healthcare and Cleantech	$	14,871	Market comparable companies	Revenue multiple(1)		0.6 – 62.5
				R&D multiple(1)		1.0 – 30.6
				Discount for lack of marketability and risk factors		40-60	%

(1)

The median for the Healthcare and Cleantech revenue multiple is 10.1; the majority of the R&D multiples fall between 4.0 and 11.4.

We have one private equity investment, which is a venture capital fund (fair value of $29.9 million and unfunded commitment of $12.2 million as of December 31, 2012) investing in communications, consumer, digital media, healthcare and information technology markets. We also have a second private equity investment which is an investment in a private equity fund focused exclusively on the energy sector (fair value of $7.7 million and unfunded commitment of $0.2 million as of December 31, 2012). In addition, one of the investments included in our consolidated private equity fund (fair value of $1.2 million and unfunded commitment of $0.2 million as of December 31, 2012) is a venture capital fund investing in clean energy, resource and energy efficiency and other sustainable industries. The fair value of each of these investments has been estimated using the capital account balances provided by the partnerships. The interests in these partnerships cannot be redeemed.

Assets Measured at Fair Value on a Nonrecurring Basis

There were no impairments recognized for goodwill, intangible assets or other long-lived assets as of December 31, 2012.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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