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Fair Value

3 Months Ended

Mar. 31, 2022

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of fair value of our consolidated company-sponsored investment funds.

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

Valuation of our financial instruments by pricing observability levels as of March 31, 2022 and December 31, 2021 was as follows (in thousands):


	Level 1		Level 2		Level 3		NAV Expedient(1)		Other		Total
March 31, 2022:
Money markets	$	122,582	$	—	$	—	$	—	$	—	$	122,582
Securities segregated (U.S. Treasury Bills)	—		1,692,536		—		—		—		1,692,536
Derivatives	1,564		20,518		—		—		—		22,082
Investments:

Equity securities	125,428		28,052		119		144		—		153,743
Long exchange-traded options	445		—		—		—		—		445
Limited partnership hedge funds(2)	—		—		—		—		54,725		54,725

Time deposits(3)	—		—		—		—		21,942		21,942
Other investments	7,861		—		—		—		4,767		12,628
Total investments	133,734		28,052		119		144		81,434		243,483
Total assets measured at fair value	$	257,880	$	1,741,106	$	119	$	144	$	81,434	$	2,080,683

Securities sold not yet purchased:
Short equities – corporate	$	3,427	$	—	$	—	$	—	$	—	$	3,427
Short exchange-traded options	221		—		—		—		—		221
Derivatives	1,895		14,252		—		—		—		16,147
Contingent payment arrangements	—		—		39,098		—		—		39,098
Total liabilities measured at fair value	$	5,543	$	14,252	$	39,098	$	—	$	—	$	58,893


	Level 1		Level 2		Level 3		NAV Expedient(1)		Other		Total
December 31, 2021:
Money markets	$	151,156	$	—	$	—	$	—	$	—	$	151,156
Securities segregated (U.S. Treasury Bills)	—		1,503,828		—		—		—		1,503,828
Derivatives	392		15,030		—		—		—		15,422
Investments:
Equity securities	144,917		39,284		126		145		—		184,472
Long exchange-traded options	1,893		—		—		—		—		1,893
Limited partnership hedge funds(2)	—		—		—		—		50,920		50,920

Time deposits(3)	—		—		—		—		21,024		21,024
Other investments	9,094		—		—		—		6,015		15,109
Total investments	155,904		39,284		126		145		77,959		273,418
Total assets measured at fair value	$	307,452	$	1,558,142	$	126	$	145	$	77,959	$	1,943,824

Securities sold not yet purchased:
Short equities – corporate	$	1,054	$	—	$	—	$	—	$	—	$	1,054
Short exchange-traded options	2,774		—		—		—		—		2,774
Derivatives	1,186		15,737		—		—		—		16,923
Contingent payment arrangements	—		—		38,260		—		—		38,260
Total liabilities measured at fair value	$	5,014	$	15,737	$	38,260	$	—	$	—	$	59,011

(1) Investments measured at fair value using NAV (or its equivalent) as a practical expedient.

(2) Investments in equity method investees that are not measured at fair value in accordance with GAAP.

(3) Investments carried at amortized cost that are not measured at fair value in accordance with GAAP.

Other investments included in Level 1 of the fair value hierarchy include our investment in a mutual fund measured at fair value ($7.9 million and $9.1 million as of March 31, 2022 and December 31, 2021, respectively). Other investments not measured at fair value include (i) investments in start-up companies that do not have a readily available fair value (these investments were $0.3 million as of March 31, 2022 and December 31, 2021), (ii) investments in equity method investees that are not measured at fair value in accordance with GAAP ($1.6 million and $2.9 million as of March 31, 2022 and December 31, 2021, respectively), and (iii) broker dealer exchange memberships that are not measured at fair value in accordance with GAAP ($2.8 million as of March 31, 2022 and December 31, 2021).

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

• Equity securities: Our equity securities consist principally of company-sponsored mutual funds with NAVs and various separately-managed portfolios consisting primarily of equity and fixed income mutual funds 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 valued based on observable inputs from recognized pricing vendors, which 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.

• 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.

• Contingent payment arrangements: Contingent payment arrangements relate to contingent payment liabilities associated with various acquisitions. At each reporting date, we estimate the fair values of the contingent consideration expected to be paid based upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy.

During the three months ended March 31, 2022 there were no transfers between Level 2 and Level 3 securities.

The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as equity securities, is as follows:


	Three Months Ended March 31,
	2022		2021
	(in thousands)
Balance as of beginning of period	$	126	$	125
Purchases	—		—
Sales	—		—
Realized gains (losses), net	—		—
Unrealized (losses), net	(7)		(1)
Balance as of end of period	$	119	$	124

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.

As part of acquisitions made by the Company, we may enter into contingent consideration arrangements as part of the purchase price. The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as contingent payment arrangements, is as follows:


	Three Months Ended March 31,
	2022		2021
	(in thousands)
Balance as of beginning of period	$	38,260	$	27,750
Addition	—		7,526
Accretion	838		797

Payments	—		—
Balance as of end of period	$	39,098	$	36,073

The liabilities were valued using expected revenue growth rates and discount rates. As of March 31, 2022, the expected revenue growth rates range from 2.0% to 83.9%, with a weighted average of 7.9%, calculated using cumulative revenues and range of revenue growth rates (excluding revenue growth from additional AUM contributed in year of acquisition). The discount rates ranged from 1.9% to 10.4%, with a weighted average of 7.0%, calculated using total contingent liabilities and range of discount rates. As of March 31, 2021 the expected revenue growth rates ranged from 2.0% to 135.6%, with a weighted average of 9.0%, calculated using cumulative revenues and a range of revenue growth rates (excluding revenue growth from additional AUM contributed from existing clients). The discount rates ranged from 1.9% to 20.0%, with a weighted average of 10.8%, calculated using total contingent liabilities and range of discount rates.

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 March 31, 2022 or during the year ended December 31, 2021.

- 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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