Derivative Instruments

9 Months Ended

Sep. 30, 2012

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. We do not hold any derivatives designated in a formal hedge relationship under ASC 815-10, Derivatives and Hedging.

The following tables present the notional value and fair value as of September 30, 2012 and December 31, 2011 for derivative instruments not designated as hedging instruments:

	Fair Value
	Notional Value		Asset Derivatives		Liability Derivatives
	(in thousands)
September 30, 2012:
Exchange-traded futures	$	103,400	$	2,097	$	32
Currency forwards		92,937		41		719
Interest rate swaps		95,355		326		1,370
Credit default swaps		104,240		2,376		2,582
Option swaps		263		260		250
Total return swaps		39,739		346		1,738
Total derivatives	$	435,934	$	5,446	$	6,691

	Fair Value
	Notional Value		Asset Derivatives		Liability Derivatives
	(in thousands)
December 31, 2011:
Exchange-traded futures	$	111,447	$	127	$	2,054
Currency forwards		38,330		358		227
Interest rate swaps		47,640		136		3,301
Credit default swaps		84,215		2,962		639
Total return swaps		38,148		38		1,038
Total derivatives	$	319,780	$	3,621	$	7,259

As of September 30, 2012 and December 31, 2011, 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 following table presents the gains and losses recognized in investment gains (losses) in the condensed consolidated statements of income:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in thousands)
Exchange-traded futures	$	(5,608	)	$	19,057		$	(14,156	)	$	18,704
Currency forwards		(1,019	)		736			165			533
Interest rate swaps		(699	)		(4,664	)		(1,422	)		(5,374	)
Credit default swaps		(3,751	)		3,837			(7,102	)		3,633
Options swaps		(222	)		—			(311	)		—
Total return swaps		(2,311	)		7,289			(4,866	)		6,166
Balance as of end of period	$	(13,610	)	$	26,255		$	(27,692	)	$	23,662

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 September 30, 2012 and December 31, 2011, we held $1.7 million and $4.4 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 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 regarding each counterparty's credit rating. In some ISDA Master Agreements, if a counterparty's credit rating (or in some agreements, our AUM) 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 on the credit rating of the counterparty. As of September 30, 2012 and December 31, 2011, we delivered $7.6 million and $14.7 million, respectively, of cash collateral into brokerage accounts, which is reported in cash and cash equivalents in our condensed consolidated statements of financial condition.