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, 2019						December 31, 2018
	(in thousands)
	VIEs		VOEs		Total		VIEs		VOEs		Total
Cash and cash equivalents	$	5,948	$	1,819	$	7,767	$	11,880	$	1,238	$	13,118
Investments	230,755		154,554		385,309		217,840		133,856		351,696
Other assets	12,668		13,522		26,190		6,024		16,816		22,840
Total assets	$	249,371	$	169,895	$	419,266	$	235,744	$	151,910	$	387,654

Liabilities	$	14,050	$	15,598	$	29,648	$	5,215	$	17,395	$	22,610
Redeemable non-controlling interest	116,343		39,642		155,985		117,523		28,398		145,921
Partners' capital attributable to AB Unitholders	118,978		114,655		233,633		113,006		106,117		219,123
Total liabilities, redeemable non-controlling interest and partners' capital	$	249,371	$	169,895	$	419,266	$	235,744	$	151,910	$	387,654

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, 2019 and December 31, 2018 was as follows (in thousands):



	Level 1		Level 2		Level 3		NAV Expedient		Total
March 31, 2019:
Investments - VIEs	$	25,109	$	196,275	$	9,371	$	—	$	230,755
Investments - VOEs	86,036		67,628		890		—		154,554
Derivatives - VIEs	837		1,787		—		—		2,624
Derivatives - VOEs	123		4,237		—		—		4,360
Total assets measured at fair value	$	112,105	$	269,927	$	10,261	$	—	$	392,293

Derivatives - VIEs	151		2,629		—		—		2,780
Derivatives - VOEs	343		3,595		—		—		3,938
Total liabilities measured at fair value	$	494	$	6,224	$	—	$	—	$	6,718

December 31, 2018:
Investments - VIEs	$	22,149	$	187,626	$	8,065	$	—	$	217,840
Investments - VOEs	68,063		65,485		308		—		133,856
Derivatives - VIEs	1,486		1,924		—		—		3,410
Derivatives - VOEs	124		3,692		—		—		3,816
Total assets measured at fair value	$	91,822	$	258,727	$	8,373	$	—	$	358,922

Derivatives - VIEs	$	72	$	3,819	$	—	$	—	$	3,891
Derivatives - VOEs	197		3,633		—		—		3,830
Total liabilities measured at fair value	$	269	$	7,452	$	—	$	—	$	7,721

See Note 11 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,
	2019			2018
	(in thousands)

Balance as of beginning of period	$	8,373		$	2,264
Transfers (out) in	(97		)	(13		)
Purchases	2,111			4,034
Sales	(284		)	(333		)
Realized gains (losses), net	2			5
Unrealized gains (losses), net	149			(58		)
Accrued discounts	7			2
Balance as of end of period	$	10,261		$	5,901

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, 2019 and December 31, 2018, the VIEs held $0.2 million and $0.5 million (net), respectively, of futures, forwards and swaps within their portfolios. For the three months ended March 31, 2019 and 2018, we recognized $1.1 million and $14.9 million of gains and 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, 2019 and December 31, 2018, the VIEs held $1.0 million and $0.9 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, 2019 and December 31, 2018, the VIEs delivered $2.1 million and $0.8 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, 2019 and December 31, 2018, the VOEs held $0.4 million and $14.0 thousand, respectively, (net) of futures, forwards, options and swaps within their portfolios. For the three months ended March 31, 2019 and 2018, we recognized $0.1 million and $0.5 million of gains and losses, respectively, on these derivatives. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income. As of both March 31, 2019 and December 31, 2018, the VOEs held $0.2 million 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, 2019 and December 31, 2018, the VOEs delivered $0.9 million and $0.5 million, respectively, of cash collateral in 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, 2019 and December 31, 2018 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, 2019:
Derivatives - VIEs	$	2,624	$	—	$	2,624	$	—	$	(958	)	$	1,666
Derivatives - VOEs	$	4,360	$	—	$	4,360	$	—	$	(241	)	$	4,119
December 31, 2018:
Derivatives - VIEs	$	3,410	$	—	$	3,410	$	—	$	(856	)	$	2,554
Derivatives - VOEs	$	3,816	$	—	$	3,816	$	—	$	(225	)	$	3,591

Offsetting of derivative liabilities of consolidated company-sponsored investment funds as of March 31, 2019 and December 31, 2018 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, 2019:
Derivatives - VIEs	$	2,780	$	—	$	2,780	$	—	$	(2,089	)	$	691
Derivatives - VOEs	$	3,938	$	—	$	3,938	$	—	$	(913	)	$	3,025
December 31, 2018:
Derivatives - VIEs	$	3,891	$	—	$	3,891	$	—	$	(829	)	$	3,062
Derivatives - VOEs	$	3,830	$	—	$	3,830	$	—	$	(547	)	$	3,283

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, 2019, the net assets of company-sponsored investment products that are non-consolidated VIEs are approximately $53.5 billion, and our maximum risk of loss is our investment of $6.4 million in these VIEs and our advisory fee receivables from these VIEs, which are not material.