Derivative Instruments

3 Months Ended

Mar. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of derivative instruments held by our consolidated company-sponsored investment funds.

We enter various futures, forwards, options and swaps to economically hedge certain seed capital investments. Also, we have currency forwards that help us to economically hedge certain balance sheet exposures. In addition, our options desk trades long and short exchange-traded equity options. We do not hold any derivatives designated in a formal hedge relationship under ASC 815-10, Derivatives and Hedging.

The notional value and fair value as of March 31, 2024 and December 31, 2023 for derivative instruments (excluding derivative instruments relating to our options desk trading activities discussed below) not designated as hedging instruments were as follows:


			Fair Value
	Notional Value		Derivative Assets		Derivative Liabilities
	(in thousands)
March 31, 2024:
Exchange-traded futures	$	121,735	$	47	$	751
Currency forwards	15,991		4,674		4,566
Interest rate swaps	44,545		519		519
Credit default swaps	83,507		8,436		3,240
Total return swaps	94,800		181		2,633
Option swaps	50,109		—		150
Total derivatives	$	410,687	$	13,857	$	11,859

December 31, 2023:
Exchange-traded futures	$	116,344	$	1	$	3,511
Currency forwards	34,440		4,951		5,597
Interest rate swaps	11,345		294		349
Credit default swaps	139,607		9,265		4,197
Total return swaps	95,021		6		4,391
Option swaps	50,232		1		135
Total derivatives	$	446,989	$	14,518	$	18,180

As of March 31, 2024 and December 31, 2023, the derivative assets and liabilities are included in both receivables and payables to brokers and dealers on our condensed consolidated statements of financial condition.

The gains and losses for derivative instruments (excluding our options desk trading activities discussed below) for the three months ended March 31, 2024 and 2023 recognized in investment gains (losses) in the condensed consolidated statements of income were as follows:


	Three Months Ended March 31,
		2024		2023
		(in thousands)
Exchange-traded futures		$	(1,579)	$	(4,632)
Currency forwards		364		(105)
Interest rate swaps		143		(63)
Credit default swaps		(829)		(2,228)
Total return swaps		(3,256)		(2,056)
Option swaps		207		(1,410)
Net (losses) on derivative instruments		$	(4,950)	$	(10,494)

We may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. We minimize our counterparty exposure through a credit review and approval process. In addition, we have executed various collateral arrangements with counterparties to the over-the-counter derivative transactions that require both pledging and accepting collateral in the form of cash. As of March 31, 2024 and December 31, 2023, we held $7.7 million and $5.7 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in payables to brokers and dealers in our condensed consolidated statements of financial condition.

Although notional amount typically is utilized as the measure of volume in the derivatives market, it is not used as a measure of credit risk. Generally, the current credit exposure of our derivative contracts is limited to the net positive estimated fair value of derivative contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral received. A derivative with positive value (a derivative asset) indicates existence of credit risk because the counterparty would owe us if the contract were closed. Alternatively, a derivative contract with negative

value (a derivative liability) indicates we would owe money to the counterparty if the contract were closed. Generally, if there is more than one derivative transaction with a single counterparty, a master netting arrangement exists with respect to derivative transactions with that counterparty to provide for aggregate net settlement.

Our standardized contracts for over-the-counter derivative transactions, known as ISDA master agreements, provide for collateralization. As of March 31, 2024 and December 31, 2023, we delivered $4.0 million and $7.8 million, respectively, of cash collateral into brokerage accounts. We report this cash collateral in cash and cash equivalents in our condensed consolidated statement of financial condition.

As of March 31, 2024 and December 31, 2023, long and short exchange-traded equity options were classified as held for sale on our condensed consolidated statement of financial condition. For further discussion, see Note 17 Divestiture.

Our options desk provides our clients with equity derivative strategies and execution for exchange-traded options on single stocks, exchange-traded funds and indices. While predominately agency-based, the options desk may commit capital to facilitate a client’s transaction. Our options desk hedges the risks associated with this activity by taking offsetting positions in equities. For the three months ended March 31, 2024 and 2023, we recognized losses of $2.0 million and of $2.9 million, respectively, on equity options activity. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statement of income.