Consolidated Company-Sponsored Investment Funds

12 Months Ended

Dec. 31, 2019

Consolidated Company-Sponsored Investment Funds [Abstract]

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 consolidated statements of financial condition were as follows:



	December 31, 2019						December 31, 2018
	(in thousands)
	VIEs		VOEs		Total		VIEs		VOEs		Total
Cash and cash equivalents	$	9,623	$	1,810	$	11,433	$	11,880	$	1,238	$	13,118
Investments	404,624		176,380		581,004		217,840		133,856		351,696
Other assets	9,618		10,192		19,810		6,024		16,816		22,840
Total assets	$	423,865	$	188,382	$	612,247	$	235,744	$	151,910	$	387,654

Liabilities	$	12,147	$	18,870	$	31,017	$	5,215	$	17,395	$	22,610
Redeemable non-controlling interest	273,219		52,342		325,561		117,523		28,398		145,921
Partners' capital attributable to AB Unitholders	138,499		117,170		255,669		113,006		106,117		219,123
Total liabilities, redeemable non-controlling interest and partners' capital	$	423,865	$	188,382	$	612,247	$	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 December 31, 2019 and 2018 was as follows (in thousands):



	Level 1		Level 2		Level 3		Total
December 31, 2019:
Investments - VIEs	$	28,270	$	375,559	$	795	$	404,624
Investments - VOEs	104,069		72,252		59		176,380
Derivatives - VIEs	139		4,694		—		4,833
Derivatives - VOEs	76		4,263		—		4,339
Total assets measured at fair value	$	132,554	$	456,768	$	854	$	590,176

Derivatives - VIEs	$	835	$	3,724	$	—	$	4,559
Derivatives - VOEs	101		4,982		—		5,083
Total liabilities measured at fair value	$	936	$	8,706	$	—	$	9,642

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 9 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:



	December 31,
	2019			2018
	(in thousands)

Balance as of beginning of period	$	8,373		$	2,264
Transfers (out) in	(9,445		)	259
Purchases	9,213			9,354
Sales	(7,467		)	(3,086		)
Realized gains (losses), net	14			(100		)
Unrealized gains (losses), net	143			(331		)
Accrued discounts	23			13
Balance as of end of period	$	854		$	8,373

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 consolidated statements of income.

Derivative Instruments

As of December 31, 2019 and 2018, the VIEs held $0.3 million and $0.5 million (net), respectively, of futures, forwards, options and swaps within their portfolios. For the years ended December 31, 2019 and 2018, we recognized $3.3 million and $1.5 million of gains, respectively, on these derivatives. These gains and losses are recognized in investment gains (losses) in the consolidated statements of income. As of December 31, 2019 and 2018, the VIEs held $1.6 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 consolidated statements of financial condition. As of December 31, 2019 and 2018, the VIEs delivered $3.2 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 consolidated statements of financial condition.

As of December 31, 2019 and 2018, the VOEs held $0.7 million and $0.1 million (net), respectively, of futures, forwards, options and swaps within their portfolios. For the years ended December 31, 2019 and 2018, we recognized $0.5 million and $1.9 million of gains, respectively, on these derivatives. These gains and losses are recognized in the investment gains (losses) in the consolidated statements of income. As of December 31, 2019 and 2018, the VOEs held $0.5 million and $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 consolidated statements of financial condition. As of December 31, 2019 and 2018, the VOEs delivered $1.2 million and $0.5 million, respectively, 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 consolidated statements of financial condition.

Offsetting Assets and Liabilities

Offsetting of derivative assets of consolidated company-sponsored investment funds as of December 31, 2019 and 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)
December 31, 2019:
Derivatives - VIEs	$	4,833	$	—	$	4,833	$	—	$	(1,631	)	$	3,202
Derivatives - VOEs	$	4,339	$	—	$	4,339	$	—	$	(534	)	$	3,805
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 December 31, 2019 and 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)
December 31, 2019:
Derivatives - VIEs	$	4,559	$	—	$	4,559	$	—	$	(3,155	)	$	1,404
Derivatives - VOEs	$	5,083	$	—	$	5,083	$	—	$	(1,201	)	$	3,882
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 December 31, 2019, the net assets of company-sponsored investment products that are non-consolidated VIEs are approximately $79.3 billion, and our maximum risk of loss is our investment of $8.4 million in these VIEs and advisory fee receivables from these VIEs, which are not material.