Consolidated Company-Sponsored Investment Funds

We regularly provide seed capital to new company-sponsored investment funds. As such, we may consolidate or de-consolidate a variety of company-sponsored investment funds each quarter. Due to the similarity of risks related to our involvement with each company-sponsored investment fund, disclosures required under the VIE model are aggregated, such as disclosures regarding the carrying amount and classification of assets.

We are not required to provide financial support to company-sponsored investment funds and only the assets of such funds are available to settle each fund's own liabilities. Our exposure to loss in regard to consolidated company-sponsored investment funds is limited to our investment in, and our management fee earned from, such funds. Equity and debt holders of such funds have no recourse to AB’s assets or to the general credit of AB.

The balances of consolidated VIEs and VOEs included in our condensed consolidated statements of financial condition were as follows:



	March 31, 2018						December 31, 2017
	(in thousands)
	VIEs		VOEs		Total		VIEs		VOEs			Total
Cash and cash equivalents	$	580,239	$	482	$	580,721	$	326,158	$	360		$	326,518
Investments	1,826,576		129,894		1,956,470		1,189,835		56,448			1,246,283
Other assets	40,242		4,250		44,492		33,931		1,466			35,397
Total assets	$	2,447,057	$	134,626	$	2,581,683	$	1,549,924	$	58,274		$	1,608,198

Liabilities	$	1,218,612	$	4,262	$	1,222,874	$	695,997	$	2,104		$	698,101
Redeemable non-controlling interest	981,961		9,641		991,602		596,241		(18		)	596,223
Partners' capital attributable to AB Unitholders	245,774		120,723		366,497		256,929		56,188			313,117
Non-redeemable non-controlling interests in consolidated entities	710		—		710		757		—			757
Total liabilities, redeemable non-controlling interest and partners' capital	$	2,447,057	$	134,626	$	2,581,683	$	1,549,924	$	58,274		$	1,608,198

Fair Value

Cash and cash equivalents include cash on hand, demand deposits, overnight commercial paper and highly liquid investments with original maturities of three months or less. Due to the short-term nature of these instruments, the recorded value has been determined to approximate fair value.

Valuation of consolidated company-sponsored investment funds' financial instruments by pricing observability levels as of March 31, 2018 and December 31, 2017 was as follows (in thousands):



	Level 1		Level 2		Level 3		NAV Expedient		Total
March 31, 2018:
Investments - VIEs	$	1,612,691	$	208,118	$	5,767	$	—	$	1,826,576
Investments - VOEs	77,172		52,588		134		—		129,894
Derivatives - VIEs	769		30,237		—		—		31,006
Derivatives - VOEs	43		595		—		—		638
Total assets measured at fair value	$	1,690,675	$	291,538	$	5,901	$	—	$	1,988,114

Short equities - VIEs	$	1,188,624	$	—	$	—	$	—	$	1,188,624
Derivatives - VIEs	1,027		17,373		—		—		18,400
Derivatives - VOEs	89		587		—		—		676
Total liabilities measured at fair value	$	1,189,740	$	17,960	$	—	$	—	$	1,207,700

December 31, 2017:
Investments - VIEs	$	1,053,824	$	133,796	$	2,205	$	10	$	1,189,835
Investments - VOEs	5,491		50,898		59		—		56,448
Derivatives - VIEs	252		30,384		—		—		30,636
Derivatives - VOEs	49		251		—		—		300
Total assets measured at fair value	$	1,059,616	$	215,329	$	2,264	$	10	$	1,277,219

Short equities - VIEs	$	669,258	$	—	$	—	$	—	$	669,258
Derivatives - VIEs	421		21,820		—		—		22,241
Derivatives - VOEs	12		619		—		—		631
Total liabilities measured at fair value	$	669,691	$	22,439	$	—	$	—	$	692,130

See Note 12 for 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.

The change in carrying value associated with Level 3 financial instruments carried at fair value within consolidated company-sponsored investment funds was as follows:



	Three Months Ended March 31,
	2018			2017
	(in thousands)

Balance as of beginning of period	$	2,264		$	5,741
Transfers (out) in	(13		)	749
Purchases	4,034			4,577
Sales	(333		)	(1,073		)
Realized gains (losses), net	5			(12		)
Unrealized (losses) gains, net	(58		)	271
Accrued discounts	2			20
Balance as of end of period	$	5,901		$	10,273

The Level 3 securities primarily consist of corporate bonds that are vendor priced with no ratings available, bank loans, non-agency collateralized mortgage obligations and asset-backed securities.

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.

Derivative Instruments

As of March 31, 2018 and December 31, 2017, the VIEs held $12.6 million and $8.4 million (net), respectively, of futures, forwards and swaps within their portfolios. For the three months ended March 31, 2018 and 2017, we recognized $14.9 million of losses and $7.2 million of gains, respectively, on these derivatives. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income. As of March 31, 2018 and December 31, 2017, the VIEs held $2.3 million and $0.2 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in the liabilities of consolidated company-sponsored investment funds in our condensed consolidated statements of financial condition. As of March 31, 2018 and December 31, 2017, the VIEs delivered $1.4 million and $2.9 million, respectively, of cash collateral into brokerage accounts. The VIEs report this cash collateral in the consolidated company-sponsored investment funds cash and cash equivalents in our condensed consolidated statements of financial condition.

As of March 31, 2018 and December 31, 2017, the VOE held $38 thousand and $0.3 million (net), respectively of futures, forwards, options and swaps within their portfolios. For the three months ended March 31, 2018 and 2017, we recognized $0.5 million and $0.4 million of losses, respectively, on these derivatives. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income. As of March 31, 2018, the VOEs held $47 thousand of cash collateral payable to trade counterparties. This obligation to return cash is reported in the liabilities of consolidated company-sponsored investment funds in our condensed consolidated statement of financial condition. As of March 31, 2018 and December 31, 2017, the VOEs held $0.3 million and $0.2 million of cash collateral into brokerage accounts. The VOEs report this cash collateral in the consolidated company-sponsored investment funds cash and cash equivalents in our condensed consolidated statements of financial condition.

Offsetting Assets and Liabilities

Offsetting of derivative assets of consolidated company-sponsored investment funds as of March 31, 2018 and December 31, 2017 was as follows:



	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Received			Net Amount
	(in thousands)
March 31, 2018:
Derivatives - VIEs	$	31,006	$	—	$	31,006	$	—	$	(2,271	)	$	28,735
Derivatives - VOEs	$	638	$	—	$	638	$	—	$	(47	)	$	591
December 31, 2017:
Derivatives - VIEs	$	30,636	$	—	$	30,636	$	—	$	(194	)	$	30,442
Derivatives - VOEs	$	300	$	—	$	300	$	—	$	(37	)	$	263

Offsetting of derivative liabilities of consolidated company-sponsored investment funds as of March 31, 2018 and December 31, 2017 was as follows:



	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Liabilities Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Pledged			Net Amount
	(in thousands)
March 31, 2018:
Derivatives - VIEs	$	18,400	$	—	$	18,400	$	—	$	(1,372	)	$	17,028
Derivatives - VOEs	$	676	$	—	$	676	$	—	$	(253	)	$	423
December 31, 2017:
Derivatives - VIEs	$	22,241	$	—	$	22,241	$	—	$	(2,884	)	$	19,357
Derivatives - VOEs	$	631	$	—	$	631	$	—	$	(228	)	$	403

Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed by counterparty.

Non-Consolidated VIEs

As of March 31, 2018, the net assets of company-sponsored investment products that are non-consolidated VIEs are approximately $83.9 billion, and our maximum risk of loss is our investment of $8.0 million in these VIEs and advisory fee receivables from these VIEs, which are not material.