Derivative Instruments

12 Months Ended

Dec. 31, 2011

Derivative Instruments [Abstract]

Derivative Instruments

7. Derivative Instruments

We enter into various futures, forwards and swaps to economically hedge certain of our seed money investments. In addition, we have currency forwards that economically hedge certain cash accounts. As of December 31, 2010, we also had seeded a product consisting of currency forwards, which was liquidated during the first quarter of 2011. Lastly, during 2010 we used currency forwards to economically hedge certain foreign investment advisory fees. We do not hold any derivatives designated in a formal hedge relationship under ASC 815-10, Derivatives and Hedging.

The following table presents the notional value, fair value and gains and losses recognized in investment gains (losses) in the consolidated statement of income as of December 31, 2011 for derivative instruments not designated as hedging instruments:

	Notional Value		Derivative Assets		Derivative Liabilities		Gains (Losses)
	(in thousands)
December 31, 2011:
Exchange-traded futures	$	111,447	$	127	$	2,054	$	8,979
Currency forwards		38,330		358		227		453
Interest rate swaps		47,640		136		3,301		(5,585	)
Credit default swaps		84,215		2,962		639		676
Total return swaps		38,148		38		1,038		(184	)
Total derivatives	$	319,780	$	3,621	$	7,259	$	4,339

The following table presents the notional value, fair value and gains and losses recognized in investment gains (losses) in the consolidated statement of income as of December 31, 2010 for derivative instruments not designated as hedging instruments:

	Notional Value		Derivative Assets		Derivative Liabilities		Gains (Losses)
	(in thousands)
December 31, 2010:
Exchange-traded futures	$	16,973	$	16	$	318	$	(5,532	)
Currency forwards		133,471		249		1,000		929
Interest rate swaps		43,210		1,197		239		(1,601	)
Credit default swaps		74,915		182		1,036		(1,155	)
Total return swaps		28,975		-		960		(8,264	)
Total derivatives	$	297,544	$	1,644	$	3,553	$	(15,623	)

As of December 31, 2011 and 2010, the derivative assets and liabilities are included in both receivables and payables to brokers and dealers on our consolidated statements of financial condition.

We may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. We take steps to minimize our counterparty exposure through a credit review and approval process. In addition, we 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 December 31, 2011 and 2010, we held $4.4 million and $6.9 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in payables to brokers and dealers in our consolidated statements of financial condition.

Although notional amount is the most commonly used measure of volume in the derivative 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.

Certain of our standardized contracts for over-the-counter derivative transactions (“ISDA Master Agreements”) contain credit risk related contingent provisions related to the counterparty's credit rating. In some ISDA Master Agreements, if the counterparty's credit rating (or in some agreements, our assets under management) falls below a specified threshold, either a default or a termination event permitting the counterparty to terminate the ISDA Master Agreement would be triggered. In all agreements that provide for collateralization, various levels of collateralization of net liability positions are applicable, depending upon the credit rating of the counterparty. As of December 31, 2011 and 2010, we delivered $14.7 million and $9.3 million, respectively, of cash collateral into brokerage accounts, which is reported in cash and cash equivalents in our consolidated statements of financial condition.