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Consolidated Company-Sponsored Investment Funds
 9 Months Ended
Sep. 30, 2019
Consolidated Company-Sponsored Investment Funds [Abstract]  
Consolidated Company-Sponsored Investment Funds 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:
 
 
September 30, 2019
 
December 31, 2018
 
 
(in thousands)
 
 
VIEs
 
VOEs
 
Total
 
VIEs
 
VOEs
 
Total
Cash and cash equivalents
 
$
14,647

 
$
2,362

 
$
17,009

 
$
11,880

 
$
1,238

 
$
13,118

Investments
 
372,668

 
163,614

 
536,282

 
217,840

 
133,856

 
351,696

Other assets
 
20,418

 
15,982

 
36,400

 
6,024

 
16,816

 
22,840

Total assets
 
$
407,733

 
$
181,958

 
$
589,691

 
$
235,744

 
$
151,910

 
$
387,654

 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
$
17,892

 
$
20,181

 
$
38,073

 
$
5,215

 
$
17,395

 
$
22,610

Redeemable non-controlling interest
 
244,327

 
47,197

 
291,524

 
117,523

 
28,398

 
145,921

Partners' capital attributable to AB Unitholders
 
145,515

 
114,579

 
260,094

 
113,006

 
106,117

 
219,123

Total liabilities, redeemable non-controlling interest and partners' capital
 
$
407,734

 
$
181,957

 
$
589,691

 
$
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 September 30, 2019 and December 31, 2018 was as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
NAV Expedient
 
Total
September 30, 2019:
 
 
 
 
 
 
 
 
 
  Investments - VIEs
$
27,424

 
$
339,350

 
$
5,894

 
$
—

 
$
372,668

  Investments - VOEs
94,725

 
68,382

 
507

 
—

 
163,614

  Derivatives - VIEs
164

 
4,520

 
—

 
—

 
4,684

  Derivatives - VOEs
38

 
8,089

 
—

 
—

 
8,127

Total assets measured at fair value
$
122,351

 
$
420,341

 
$
6,401

 
$
—

 
$
549,093

 
 
 
 
 
 
 
 
 
 
Derivatives - VIEs
521

 
4,299

 
—

 
—

 
4,820

  Derivatives - VOEs
57

 
5,447

 
—

 
—

 
5,504

Total liabilities measured at fair value
$
578

 
$
9,746

 
$
—

 
$
—

 
$
10,324

 
 
 
 
 
 
 
 
 
 
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 September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
 
 
 
 
 
 
 
 
 
Balance as of beginning of period
 
$
11,834

 
$
5,871

 
$
8,373

 
$
2,264

Transfers (out) in
 
(3,602
)
 
(406
)
 
(3,788
)
 
(82
)
Purchases
 
1,187

 
1,247

 
8,978

 
7,381

Sales
 
(2,996
)
 
(197
)
 
(7,345
)
 
(2,820
)
Realized gains (losses), net
 
12

 
2

 
35

 
(97
)
Unrealized gains (losses), net
 
(40
)
 
(25
)
 
129

 
(158
)
Accrued discounts
 
6

 
2

 
19

 
6

Balance as of end of period
 
$
6,401

 
$
6,494

 
$
6,401

 
$
6,494



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 September 30, 2019 and December 31, 2018, the VIEs held $0.1 million and $0.5 million (net), respectively, of futures, forwards and swaps within their portfolios. For the three and nine months ended September 30, 2019, we recognized $0.6 million and $3.3 million of gains, respectively, on these derivatives. For the three and nine months ended September 30, 2018 we recognized $0.5 million of losses and $0.4 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 September 30, 2019 and December 31, 2018, the VIEs held $1.4 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 September 30, 2019 and December 31, 2018, the VIEs delivered $3.4 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 September 30, 2019 and December 31, 2018, the VOEs held $2.6 million and $0.1 million, respectively, (net) of futures, forwards, options and swaps within their portfolios. For the three and nine months ended September 30, 2019, we recognized $1.0 million and $0.5 million of gains, respectively, on these derivatives. For the three and nine months ended September 30, 2018 we recognized $0.2 million and $1.5 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 September 30, 2019 and December 31, 2018, the VOEs held $0.6 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 September 30, 2019 and December 31, 2018, the VOEs delivered $1.3 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 September 30, 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)
September 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
Derivatives - VIEs
$
4,684

 
$
—

 
$
4,684

 
$
—

 
$
(1,351
)
 
$
3,333

Derivatives - VOEs
$
8,127

 
$
—

 
$
8,127

 
$
—

 
$
(597
)
 
$
7,530

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 September 30, 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)
September 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
Derivatives - VIEs
$
4,820

 
$
—

 
$
4,820

 
$
—

 
$
(3,368
)
 
$
1,452

Derivatives - VOEs
$
5,504

 
$
—

 
$
5,504

 
$
—

 
$
(1,291
)
 
$
4,213

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 September 30, 2019, the net assets of company-sponsored investment products that are non-consolidated VIEs are approximately $72.0 billion, and our maximum risk of loss is our investment of $11.0 million in these VIEs and our advisory fee receivables from these VIEs, which are not material.