FAIR VALUE

Financial Instrument Valuations

The valuation techniques used by the Company to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The valuation techniques applied to investments held by the Company and by the Consolidated Funds vary depending on the nature of the investment.

CLO loan obligations: The fair value of fixed income CLOs held by the Company are estimated based on various third-party pricing services or broker quotes and are classified as Level III. The Company adopted ASU 2014-13 as of January 1, 2016, under which the Company first determines whether the fair values of the financial assets or financial liabilities of its consolidated CLOs are more observable. The Company determined that the fair value of the financial assets of the consolidated CLOs, which are mostly Level II assets, are more observable than the fair value of the financial liabilities of its consolidated CLOs, which are mostly Level III liabilities. As a result, the financial assets of consolidated CLOs are measured at fair value and the financial liabilities of the consolidated CLOs are measured in consolidation as: (1) the sum of the fair value of the financial assets, and the carrying value of any nonfinancial assets held temporarily, less (2) the sum of the fair value of any beneficial interests retained by the Company (other than those that represent compensation for services), and the Company’s carrying value of any beneficial interests that represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interests retained by the Company).

Prior to 2016, the Company had elected the fair value option to measure its CLO loan obligations as the Company had determined that the fair value of these obligations better correlated with the value of the assets held by the CLOs, which are held to provide the cash flows for the note obligations. The fair value of CLO liabilities was estimated based on various third-party pricing service and internal valuation models. The valuation models utilized discounted cash flows and took into consideration prepayment and loss assumptions, based on historical experience and projected performance, economic factors, the characteristics and condition of the underlying collateral, comparable yields for similar securities and recent trading activity. These securities were classified as Level III.

Corporate debt, bonds, bank loans and derivative instruments: The fair value of corporate debt, bonds, bank loans and derivative instruments is estimated based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs. These investments are generally classified within Level II. The Company obtains prices from independent pricing services that generally utilize broker quotes and may use various other pricing techniques, which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data. If management is only able to obtain a single broker quote, or utilize a pricing model, such securities will be classified as Level III.

Equity and equity-related securities: Securities traded on a national securities exchange are stated at the last reported sales price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are classified as Level I. Securities that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs obtained by the Company from independent pricing services are classified as Level II.

Partnership interests: The Company generally values its investments using the NAV per share equivalent calculated by the investment manager as a practical expedient to determining an independent fair value or estimates based on various valuation models of third-party pricing services, as well as internal models. The Company does not categorize within the fair value hierarchy investments where fair value is measured using the net asset value per share practical expedient.

Certain investments of the Company are valued at NAV per share of the fund. In limited circumstances, the Company may determine, based on its own due diligence and investment procedures, that NAV per share does not represent fair value. In such circumstances, the Company will estimate the fair value in good faith and in a manner that it reasonably chooses, in accordance with the requirements of GAAP. As of December 31, 2017 and 2016, NAV per share represents the fair value of the investments for the Company and discounted cash flow analysis is used to determine the fair value for an investment held by the Consolidated Funds.

The substantial majority of the Company's private commingled funds are closed-ended, and accordingly, do not permit investors to redeem their interests other than in limited circumstances that are beyond the control of the Company, such as instances in which retaining the interest could cause the investor to violate a law, regulation or rule. Investors in open-ended and evergreen funds have the right to withdraw their capital, subject to the terms of the respective constituent documents, over periods ranging from one month to three years. In addition, separately managed investment vehicles for a single fund investor may allow such investors to terminate the fund at the discretion of the investor pursuant to the terms of the applicable constituent documents of such vehicle.

Contingent consideration: The Company generally determines the fair value of its contingent consideration liabilities by using a discounted cash flow approach based on the most likely outcome. The most likely outcome is determined using the best information available, which may be based on one or more of the following factors: historical experience, prior period performance, current progress towards targets, probability-weighted scenarios, and management's own assumptions. The discount rate used is determined based on the weighted average cost of capital for the Company. The fair value of the Company's contingent consideration liabilities are classified as Level III. Contingent consideration liabilities are included within accounts payable, accrued expenses and other liabilities in the Consolidated Statements of Financial Condition.

Level III Valuations

In the absence of observable market prices, the Company values Level III investments using consistent valuation methodologies, typically market- or income-based approaches. The main inputs into the Company’s valuation model for Level III securities include earnings multiples (based on the historical earnings of the issuer) and discounted cash flows. The Company may also consider original transaction price, recent transactions in the same or similar instruments, completed third‑party transactions in comparable instruments and other liquidity, credit and market risk factors. The quarterly valuation process for Level III investments begins with each investment or loan being valued by the investment or valuation teams. The valuations are then reviewed and approved by the valuation committee, which consists of senior members of the investment team and other senior managers. All Level III investment values are ultimately approved by the valuation committees and designated investment professionals. For certain investments, the valuation process also includes a review by independent valuation parties, at least annually, to determine whether the fair values determined by management are reasonable. Results of the valuation process are evaluated each quarter, including an assessment of whether the underlying calculations should be adjusted. In connection with this process, the Company evaluates changes in fair value measurements from period to period for reasonableness, considering items such as industry trends, general economic and market conditions and factors specific to the investment.

Certain Level III assets are valued using prices obtained from brokers or pricing vendors. The Company typically obtains one to two non-binding broker quotes. The Company seeks to obtain at least one quote directly from a broker making a market for the asset and one price from a pricing vendor for each security or similar securities. For investments where more than one quote is received, the investments are classified as Level II. For investments where only one quote is received, the investments are classified as Level III as the quoted prices may be indicative of securities that are in an inactive market, or may require adjustment for investment-specific factors or restrictions. Generally, the Company does not adjust any of the prices received from these sources but material prices are reviewed against the Company’s valuation models with a limited exception for securities that are deemed to have no value. The Company evaluates the prices obtained from brokers and pricing vendors based on available market information, including trading activity of the subject or similar securities or by performing a comparable security analysis to ensure that fair values are reasonably estimated. The Company may also perform back-testing of valuation information obtained from brokers and pricing vendors against actual prices received in transactions to validate pricing discrepancies. In addition to on-going monitoring and back-testing, the Company performs due diligence procedures over pricing vendors to understand their methodology and controls to support their use in the valuation process and to ensure compliance with required accounting disclosures.

Fair Value of Financial Instruments Held by the Company and Consolidated Funds

The tables below summarize the financial assets and financial liabilities measured at fair value for the Company and Consolidated Funds as of December 31, 2017:



Financial Instruments of the Company	Level I		Level II			Level III		Investments Measured at NAV		Total
Assets, at fair value
Investments:
Fixed income - collateralized loan obligations	$	—	$	—		$	195,158	$	—	$	195,158
Equity securities	520		1,116			—		—		1,636
Partnership interests	—		—			44,769		35,998		80,767
Total investments, at fair value	520		1,116			239,927		35,998		277,561
Derivatives-foreign exchange contracts	—		498			—		—		498
Total assets, at fair value	$	520	$	1,614		$	239,927	$	35,998	$	278,059
Liabilities, at fair value
Derivatives-foreign exchange contracts	$	—	$	(2,639	)	$	—	$	—	$	(2,639	)
Total liabilities, at fair value	$	—	$	(2,639	)	$	—	$	—	$	(2,639	)



Financial Instruments of Consolidated Funds	Level I		Level II			Level III			Total
Assets, at fair value
Investments:
Fixed income investments:
Bonds	$	—	$	82,151		$	7,041		$	89,192
Loans	—		4,755,335			260,848			5,016,183
Collateralized loan obligations	—		10,000			—			10,000
Total fixed income investments	—		4,847,486			267,889			5,115,375
Equity securities	72,558		—			162,577			235,135
Partnership interests	—		—			232,332			232,332
Other	—		—			—			—
Total investments, at fair value	72,558		4,847,486			662,798			5,582,842
Derivatives:
Foreign exchange contracts	—		—			—			—
Asset swaps - other	—		—			1,366			1,366
Total derivative assets, at fair value	—		—			1,366			1,366
Total assets, at fair value	$	72,558	$	4,847,486		$	664,164		$	5,584,208
Liabilities, at fair value
Asset swaps - other	$	—	$	—		$	(462	)	$	(462	)
Loan obligations of CLOs	—		(4,963,194		)	—			(4,963,194		)
Total liabilities, at fair value	$	—	$	(4,963,194	)	$	(462	)	$	(4,963,656	)

The tables below summarize the financial assets and financial liabilities measured at fair value for the Company and Consolidated Funds as of December 31, 2016:



Financial Instruments of the Company	Level I		Level II		Level III			Investments Measured at NAV(1)		Total
Assets, at fair value
Investments:
Fixed income - collateralized loan obligations	$	—	$	—	$	89,111		$	—	$	89,111
Equity securities	100		—		—			—		100
Partnership interests	—		—		33,410			19,819		53,229
Total investments, at fair value	100		—		122,521			19,819		142,440
Derivatives-foreign exchange contracts	—		3,171		—			—		3,171
Total assets, at fair value	$	100	$	3,171	$	122,521		$	19,819	$	145,611
Liabilities, at fair value
Contingent considerations	$	—	$	—	$	(22,156	)	$	—	$	(22,156	)
Total liabilities, at fair value	$	—	$	—	$	(22,156	)	$	—	$	(22,156	)


(1)	In prior year presentation, certain funds that are equity method investments were included in the column as the carrying value approximates NAV. Current year presentation has been modified to remove those amounts.



Financial Instruments of Consolidated Funds	Level I		Level II			Level III			Total
Assets, at fair value
Investments:
Fixed income investments:
Bonds	$	—	$	104,886		$	37,063		$	141,949
Loans	—		2,606,423			199,217			2,805,640
Collateralized loan obligations	—		—			5,973			5,973
Total fixed income investments	—		2,711,309			242,253			2,953,562
Equity securities	56,662		17,569			130,690			204,921
Partnership interests	—		—			171,696			171,696
Asset swaps - other	—		24			—			24
Total investments, at fair value	56,662		2,728,902			544,639			3,330,203
Derivatives:
Foreign exchange contracts	—		529			—			529
Asset swaps - other	—		—			291			291
Total derivative assets, at fair value	—		529			291			820
Total assets, at fair value	$	56,662	$	2,729,431		$	544,930		$	3,331,023
Liabilities, at fair value
Asset swaps - other	$	—	$	—		$	(2,999	)	$	(2,999	)
Loan obligations of CLOs	—		(3,031,112		)	—			(3,031,112		)
Total liabilities, at fair value	$	—	$	(3,031,112	)	$	(2,999	)	$	(3,034,111	)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the year ended December 31, 2017:



	Level III Assets								Level III Liabilities
Level III Assets and Liabilities of the Company	Fixed Income			Partnership Interests		Total			Contingent Considerations
Balance, beginning of period	$	89,111		$	33,410	$	122,521		$	22,156
Purchases(1)	143,579			169		143,748			—
Sales/settlements(2)	(39,047		)	—		(39,047		)	(1,000		)
Expired contingent considerations	—			—		—			(1,000		)
Realized and unrealized appreciation (depreciation), net	1,515			11,190		12,705			(20,156		)
Balance, end of period	$	195,158		$	44,769	$	239,927		$	—
Increase in unrealized appreciation/depreciation included in earnings related to financial assets and liabilities still held at the reporting date	$	2,752		$	11,359	$	14,111		$	—



Level III Assets of Consolidated Funds	Equity Securities			Fixed Income			Partnership Interests			Derivatives, Net			Total
Balance, beginning of period	$	130,690		$	242,253		$	171,696		$	(2,708	)	$	541,931
Additions(3)	—			14,479			—			1,393			15,872
Transfer in	—			45,526			—			—			45,526
Transfer out	(6,581		)	(100,643		)	—			—			(107,224		)
Purchases(1)	6,691			240,723			88,000			—			335,414
Sales(2)	(3,701		)	(180,248		)	(45,000		)	—			(228,949		)
Settlement, net	—			—			—			(2,192		)	(2,192		)
Amortized discounts/premiums	—			247			—			244			491
Realized and unrealized appreciation (depreciation), net	35,478			5,552			17,636			4,167			62,833
Balance, end of period	$	162,577		$	267,889		$	232,332		$	904		$	663,702
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	33,990		$	31		$	17,636		$	(705	)	$	50,952


(1)	Purchases include paid‑in‑kind interest and securities received in connection with restructurings.


(2)	Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.


(3)	Additions relates to a CLO that was refinanced and restructured that is now consolidated.

The following tables set forth a summary of changes in the fair value of the Level III measurements for the year ended December 31, 2016:



	Level III Assets									Level III Liabilities
Level III Assets and Liabilities of the Company	Fixed Income			Partnership Interests			Total			Contingent Considerations
Balance, beginning of period	$	55,752		$	51,703		$	107,455		$	40,831
Purchases(1)	33,053			9,000			42,053			—
Sales/settlements(2)	(3,698		)	—			(3,698		)	(1,000		)
Realized and unrealized appreciation (depreciation), net	4,004			(27,293		)	(23,289		)	(17,675		)
Balance, end of period	$	89,111		$	33,410		$	122,521		$	22,156
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets and liabilities still held at the reporting date	$	3,437		$	(7,293	)	$	(3,856	)	$	(17,675	)



Level III Assets of Consolidated Funds	Equity Securities			Fixed Income			Partnership Interests			Derivatives, Net			Total
Balance, beginning of period	$	129,809		$	249,490		$	86,902		$	(10,307	)	$	455,894
Transfer in	—			59,790			—			—			59,790
Transfer out	(344		)	(90,952		)	—			—			(91,296		)
Purchases(1)	15,849			167,338			65,906			—			249,093
Sales(2)	(18,029		)	(125,642		)	(3,606		)	(81		)	(147,358		)
Amortized discounts/premiums	—			2,660			—			57			2,717
Realized and unrealized appreciation (depreciation), net	3,405			(20,431		)	22,494			7,623			13,091
Balance, end of period	$	130,690		$	242,253		$	171,696		$	(2,708	)	$	541,931
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	8,333		$	(9,391	)	$	22,494		$	5,660		$	27,096


(1)	Purchases include paid‑in‑kind interest and securities received in connection with restructurings.


(2)	Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

The Company recognizes transfers between the levels as of the beginning of the period. Transfers out of Level III were generally attributable to certain investments that experienced a more significant level of market activity during the period and thus were valued using observable inputs either from independent pricing services or multiple brokers. Transfers into Level III were generally attributable to certain investments that experienced a less significant level of market activity during the period and thus were only able to obtain one or fewer quotes from a broker or independent pricing service. During the year ended December 31, 2017, two of the Company's investments were transferred from a Level II to a Level I fair value measurement at their fair values totaling $7.5 million as of the transfer date. The investments transferred represent equity securities that were previously less actively traded that began to have significant levels of market activity to support quoted market prices during the second quarter of 2017. For the year ended December 31, 2016, there were no transfers between Level I and Level II.

The following table sets forth a summary of changes in the fair value of the Level III liabilities for the CLO loan obligations for the years ended December 31, 2017 and 2016:



	For the Year Ended December 31,
	2017		2016
Balance, beginning of period	$	—	$	2,174,352
Accounting change due to the adoption of ASU 2014-13(1)	—		(2,174,352		)
Balance, end of period	$	—	$	—

(1) Upon adoption of ASU 2014-13, the debt obligations of consolidated CLOs are no longer considered Level III financial liabilities under the GAAP fair value hierarchy. As of January 1, 2016, the debt obligations of consolidated CLOs are measured on the basis of the fair value of the financial assets of the CLO and are classified as Level II financial liabilities.

The following table summarizes the quantitative inputs and assumptions used for the Company’s Level III measurements as of December 31, 2017:



	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range
Assets
Partnership interests	$	44,769	Other	N/A	N/A
Fixed income - collateralized loan obligations	195,158		Broker quotes and/or 3rd party pricing services	N/A	N/A
Total	$	239,927

The following table summarizes the quantitative inputs and assumptions used for the Company’s Level III measurements as of December 31, 2016:



	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range
Assets
Partnership interests	$	33,410	Other	N/A	N/A
Fixed income - collateralized loan obligations	89,111		Broker quotes and/or 3rd party pricing services	N/A	N/A
Total	$	122,521
Liabilities
Contingent consideration liabilities
	$	20,278	Other	N/A	N/A
	1,878		Discounted cash flow	Discount rate	6.5%
Total	$	22,156

The following table summarizes the quantitative inputs and assumptions used for the Consolidated Funds’ Level III measurements as of December 31, 2017:



	Fair Value			Valuation Technique(s)	Significant Unobservable Input(s)	Range	Weighted Average
Assets
Equity securities
	$	63,155		Enterprise value market multiple analysis	EBITDA multiple(2)	2.7x	2.7x
	61,215			Market approach (comparable companies)	Net income multiple Illiquidity discount	27.0x - 36.2x 25.0%	33.7x 25.0%
	126			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	38,081			Transaction price(1)	N/A	N/A	N/A
Partnership interests	232,332			Discounted cash flow	Discount rate	19.0%	19.0%
Fixed income securities
	222,413			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	45,243			Income approach	Yield	10.8% - 22.5%	12.1%
	233			Market approach (comparable companies)	EBITDA multiple(2)	6.5x	6.5x
Derivative instruments	1,366			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total assets	$	664,164
Liabilities
Derivatives instruments	$	(462	)	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total liabilities	$	(462	)


(1)	Transaction price consists of securities recently purchased or restructured. The Company determined that there was no change to the valuation based on the underlying assumptions used at the closing of such transactions.


(2)	“EBITDA” in the table above is a Non-GAAP financial measure and refers to earnings before interest, tax, depreciation and amortization.

The following table summarizes the quantitative inputs and assumptions used for the Consolidated Funds’ Level III measurements as of December 31, 2016:



	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range	Weighted Average
Assets
Equity securities
	$	43,011	EV market multiple analysis	EBITDA multiple(2)	2.0x - 11.2x	2.3x
	32,598		Market approach (comparable companies)	Net income multiple Illiquidity discount	30.0x - 40.0x 25.0%	35.0x 25.0%
	421		Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	54,660		Transaction price(1)	N/A	N/A	N/A
Partnership interests	171,696		Discounted cash flow	Discount rate	20.0%	20.0%
Fixed income securities
	170,231		Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	6,693		EV market multiple analysis	EBITDA multiple(2)	7.1x	7.1x
	5,473		Income approach	Collection rates	1.2x	1.2x
	28,595		Income approach	Yield	6.0% - 13.6%	10.9%
	24,052		Discounted cash flow	Discount rate	7.8% - 15.3%	11.1%
	1,776		Market approach (comparable companies)	EBITDA multiple(2)	6.5x	6.5x
	4,887		Transaction price(1)	N/A	N/A	N/A
	546		Market approach	EBITDA Multiple(2)	6.1x	6.1x
Derivative instruments	291		Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total assets	$	544,930
Liabilities
Derivatives instruments	$	2,999	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total liabilities	$	2,999


(1)	Transaction price consists of securities recently purchased or restructured. The Company determined that there has been no change to the valuation based on the underlying assumptions used at the closing of such transactions.


(2)	“EBITDA” in the table above is a Non-GAAP financial measure and refers to earnings before interest, tax, depreciation and amortization.

The Company's investments valued using net asset value (“NAV”) have terms and conditions that do not allow for redemption without certain events or approvals that are outside the Company's control. A summary of fair value by segment and the remaining unfunded commitments are presented below:



	As of December 31, 2017				As of December 31, 2016
Segment	Fair Value		Unfunded Commitments		Fair Value		Unfunded Commitments
Non-core investments(1)	$	35,998	$	16,492	$	19,819	$	34,500
Totals	$	35,998	$	16,492	$	19,819	$	34,500

(1) Non-core investments are reported within the Company's Operations Management Group ("OMG").