Derivative Instruments

3 Months Ended

Mar. 31, 2013

Derivative Instruments [Abstract]

Derivative Instruments

9.     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 March 31, 2013 and December 31, 2012 for derivative instruments not designated as hedging instruments:

			Fair Value
	Notional Value		Asset Derivatives		Liability Derivatives
	(in thousands)
March 31, 2013:
Exchange-traded futures	$	103,828	$	821	$	1,336
Currency forwards		108,862		1,192		333
Interest rate swaps		52,143		78		166
Credit default swaps		16,330		35		23
Option swaps		13		189		178
Total return swaps		108,712		616		2,045
Total derivatives	$	389,888	$	2,931	$	4,081

			Fair Value
	Notional Value		Asset Derivatives		Liability Derivatives
	(in thousands)
December 31, 2012:
Exchange-traded futures	$	89,901	$	64	$	1,598
Currency forwards		80,445		473		429
Interest rate swaps		55,435		73		888
Credit default swaps		53,775		457		272
Option swaps		103		83		92
Total return swaps		90,673		1,475		3,791
Total derivatives	$	370,332	$	2,625	$	7,070

As of March 31, 2013 and December 31, 2012, the derivative assets and liabilities are included in both receivables and payables to brokers and dealers in the 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 March 31,
		2013			2012
	(in thousands)
Exchange-traded futures		$	(3,931	)	$	(16,597	)
Currency forwards			176			(181	)
Interest rate swaps			283			737
Credit default swaps			(112	)		(2,599	)
Options swaps			(124	)		—
Total return swaps			(3,375	)		(2,422	)
Balance as of end of period		$	(7,083	)	$	(21,062	)

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 March 31, 2013 and December 31, 2012, we held $1.1 million and $1.5 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 the 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 March 31, 2013 and December 31, 2012, we delivered $5.3 million and $8.4 million, respectively, of cash collateral into brokerage accounts, which is reported in cash and cash equivalents in our condensed consolidated statements of financial condition.