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Fair Value

6 Months Ended

Jun. 30, 2023

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 June 30, 2023 and December 31, 2022 was as follows (in thousands):


	Level 1		Level 2		Level 3		NAV Expedient(1)		Other		Total
June 30, 2023:
Money markets	$	151,698	$	—	$	—	$	—	$	—	$	151,698
Securities segregated (U.S. Treasury Bills)	—		878,235		—		—		—		878,235
Derivatives	1,517		16,744		—		—		—		18,261
Investments:

Equity securities	127,806		28,217		121		1,519		—		157,663

Limited partnership hedge funds(2)	—		—		—		—		37,122		37,122

Time deposits(3)	—		—		—		—		7,437		7,437
Other investments	7,293		—		—		—		3,006		10,299
Total investments	135,099		28,217		121		1,519		47,565		212,521
Total assets measured at fair value	$	288,314	$	923,196	$	121	$	1,519	$	47,565	$	1,260,715




Derivatives	1,226		13,439		—		—		—		14,665
Contingent payment arrangements	—		—		249,854		—		—		249,854
Total liabilities measured at fair value	$	1,226	$	13,439	$	249,854	$	—	$	—	$	264,519


	Level 1		Level 2		Level 3		NAV Expedient(1)		Other		Total
December 31, 2022:
Money markets	$	95,521	$	—	$	—	$	—	$	—	$	95,521
Securities segregated (U.S. Treasury Bills)	—		1,521,705		—		—		—		1,521,705
Derivatives	1,768		22,944		—		—		—		24,712
Investments:
Equity securities	129,655		27,799		129		1,484		—		159,067

Limited partnership hedge funds(2)	—		—		—		—		42,526		42,526

Time deposits(3)	—		—		—		—		7,750		7,750
Other investments	6,689		—		—		—		1,486		8,175
Total investments	136,344		27,799		129		1,484		51,762		217,518
Total assets measured at fair value	$	233,633	$	1,572,448	$	129	$	1,484	$	51,762	$	1,859,456




Derivatives	162		13,550		—		—		—		13,712
Contingent payment arrangements	—		—		247,309		—		—		247,309
Total liabilities measured at fair value	$	162	$	13,550	$	247,309	$	—	$	—	$	261,021

(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 ($7.3 million and $6.7 million as of June 30, 2023 and December 31, 2022, respectively). Other investments not measured at fair value include (i) investment in a start-up company that does not have a readily available fair value (this investment was $0.3 million as of both June 30, 2023 and December 31, 2022) and (ii) broker dealer exchange memberships that are not measured at fair value in accordance with GAAP ($2.7 million and $1.2 million as of June 30, 2023 and December 31, 2022, respectively).

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.

• 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 six months ended June 30, 2023 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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Balance as of beginning of period	$	170	$	119	$	129	$	126
Purchases	—		—		—		—
Sales	—		—		—		—
Realized gains (losses), net	—		—		—		—
Unrealized (losses), net	(49)		—		(8)		(7)
Balance as of end of period	$	121	$	119	$	121	$	119

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.

Our acquisitions may include 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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Balance as of beginning of period	$	248,185	$	39,098	$	247,309	$	38,260
Addition	—		2,500		—		2,500
Accretion	2,444		838		4,887		1,676

Payments	—		—		(792)		—
Held for sale reclassification	(775)		—		(1,550)		—
Balance as of end of period	$	249,854	$	42,436	$	249,854	$	42,436

As of June 30, 2023, the expected revenue growth rates ranged from 2.0% to 83.9%, with a weighted average of 10.3%, calculated using cumulative revenues and range of revenue growth rates. The discount rates range from 1.9% to 10.4%, with a weighted average of 4.6%, calculated using total contingent liabilities and range of discount rates. As of June 30, 2022, the expected revenue growth rates ranged from 2.0% to 83.9%, with a weighted average of 7.9%, calculated using cumulative revenues and a 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.

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 six months ended June 30, 2023 or during the year ended December 31, 2022.

- 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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