DERIVATIVE FINANCIAL INSTRUMENTS

In the normal course of business, the Company and the Consolidated Funds are exposed to certain risks relating to their ongoing operations and use various types of derivative instruments primarily to mitigate against credit and foreign exchange risk. The derivative instruments used by the Company and Consolidated Funds include warrants, currency options, interest rate swaps, credit default swaps and forward contracts. The derivative instruments are not designated as hedging instruments under the accounting standards for derivatives and hedging. The Company recognizes all of its derivative instruments at fair value as either assets or liabilities in the Consolidated Statements of Financial Condition within other assets or accounts payable, accrued expenses and other liabilities, respectively.

By using derivatives, the Company and the Consolidated Funds are exposed to counterparty credit risk if counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, the Company's counterparty credit risk is equal to the amount reported as a derivative asset in the Consolidated Statements of Financial Condition. The Company minimizes counterparty credit risk through credit approvals, limits, monitoring procedures, executing master netting arrangements and obtaining collateral, where appropriate.

To the extent the master netting arrangements and other criteria meet the applicable requirements, which includes determining the legal enforceability of the arrangements, the Company may choose to offset the derivative assets and liabilities in the same currency by specific derivative type, or in the event of default by the counterparty, offset derivative assets and liabilities with the same counterparty. The Company generally presents derivative and other financial instruments on a gross basis within the Consolidated Statements of Financial Condition, with certain instruments subject to enforceable master netting arrangements that could allow for the derivative and other financial instruments to be offset. The Consolidated Funds present derivative and other financial instruments on a net basis. This election is determined at management's discretion on a fund by fund basis. The Company has retained each Consolidated Fund's presentation upon consolidation.

Qualitative Disclosures of Derivative Financial Instruments

Derivative instruments are marked-to-market daily based upon quotations from pricing services or by the Company and the change in value, if any, is recorded as an unrealized gain (loss) within net realized and unrealized gain (loss) on investments in the Consolidated Statements of Operations. Upon settlement of the instrument, the Company records the realized gain (loss) within net realized and unrealized gain (loss) on investments in the Consolidated Statements of Operations.

Significant derivative instruments utilized by the Company and the Consolidated Funds during the reporting periods presented include the following:

Forward Foreign Currency Contracts: The Company and the Consolidated Funds enter into foreign currency forward exchange contracts to hedge against foreign currency exchange rate risk on certain non-U.S. dollar denominated cash flows. When entering into a forward currency contract, the Company and the Consolidated Funds agree to receive and/or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed-upon future date. Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Consolidated Statements of Financial Condition. The Company and the Consolidated Funds bear the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. In addition, the potential inability of the counterparties to meet the terms of their contracts poses a risk to the Company and the Consolidated Funds.

Interest Rate Swaps: The Company and the Consolidated Funds enter into interest rate swap contracts to mitigate their interest rate risk exposure to higher floating interest rates. Interest rate swaps represent an agreement between two counterparties to exchange cash flows based on the difference in two interest rates, applied to the notional principal amount for a specified period. The payment flows are generally netted, with the difference being paid by one party to the other. The interest rate swap contracts effectively mitigate the Company and the Consolidated Funds’ exposure to interest rate risk by converting a portion of the Company and the Consolidated Funds’ floating rate debt to a fixed rate basis.

Asset Swap: The Consolidated Funds enter into asset swap contracts to hedge against foreign currency exchange rate risk on certain non-Euro denominated loans. Assets swap contracts provide the Consolidated Funds with the opportunity to purchase or sell an underlying asset that are not denominated in Euros and a pre agreed exchange rate and receive Euro interest payments from the swap counter party in exchange for non-Euro interest payments which are pegged to the currency of the underlying loan and applicable interest rates. The swap contracts can be optionally cancelled at any time, normally due the disposal or redemption of the underlying asset, however in the absence of sale or redemption the swap contracts maturity matches that of the underlying asset. By entering into asset swap contracts to exchange interest payments and principal on equally valued loans denominated in a different currency than that of the underlying assets the Consolidated Funds can mitigate the risk of exposure to foreign currency fluctuations. Generally, the fair value of asset swap contracts are calculated using a model which utilizes the spread between the fair value of the underlying asset and the exercise value of the contract, as well as any other relevant inputs. Broker quotes may also be used to calculate the fair value of asset swaps, if available.

Quantitative Disclosures of Derivative Financial Instruments

The following tables identify the fair value and notional amounts of derivative contracts by major product type on a gross basis for the Company and the Consolidated Funds as of December 31, 2017 and 2016. These amounts may be offset (to the extent that there is a legal right to offset) and presented on a net basis within other assets or accounts payable, accrued expenses and other liabilities in the Consolidated Statements of Financial Condition:



	As of December 31, 2017								As of December 31, 2016
	Assets				Liabilities				Assets				Liabilities
The Company	Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value
Foreign exchange contracts	$	13,724	$	498	$	51,026	$	2,639	$	62,830	$	3,171	$	—	$	—
Total derivatives, at fair value	$	13,724	$	498	$	51,026	$	2,639	$	62,830	$	3,171	$	—	$	—



	As of December 31, 2017								As of December 31, 2016
	Assets				Liabilities				Assets				Liabilities
Consolidated Funds	Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value
Foreign exchange contracts	$	—	$	—	$	—	$	—	$	25,304	$	529	$	—	$	—
Asset swap - other	5,363		1,366		1,840		462		3,575		291		204		2,999
Total derivatives, at fair value	5,363		1,366		1,840		462		28,879		820		204		2,999
Other—equity(2)	—		—		—		—		253		24		—		—
Total	$	5,363	$	1,366	$	1,840	$	462	$	29,132	$	844	$	204	$	2,999


(1)	Represents the total contractual amount of derivative assets and liabilities outstanding.


(2)	Includes the fair value of warrants which are presented as equity securities within investments of the Consolidated Funds in the Consolidated Statements of Financial Condition.

The following tables present a summary of net realized gains (losses) and unrealized appreciation (depreciation) on the Company's derivative instruments, which are included within net realized and unrealized gain (loss) on investments in the Consolidated Statements of Operations, for the years ended December 31, 2017, 2016 and 2015:



	For the Year Ended December 31,
The Company	2017			2016			2015
Net realized gain (loss) on derivatives
Interest rate contracts—Swaps	$	—		$	(337	)	$	(1,318	)
Foreign exchange contracts:
Purchased options	—			—			2,022
Foreign currency forward contracts	(1,830		)	1,783			8,379
Net realized gain (loss) on derivatives	$	(1,830	)	$	1,446		$	9,083
Net change in unrealized appreciation (depreciation) on derivatives
Interest rate contracts—Swaps	$	—		$	214		$	633
Foreign exchange contracts:
Purchased options	—			—			(1,057		)
Foreign currency forward contracts	(5,299		)	2,008			(2,556		)
Net change in unrealized appreciation (depreciation) on derivatives	$	(5,299	)	$	2,222		$	(2,980	)



	For the Year Ended December 31,
Consolidated Funds	2017			2016			2015
Net realized gain (loss) on derivatives of Consolidated Funds
Foreign currency forward contracts	$	(181	)	$	(1,008	)	$	3,752
Asset swap - other	903			(1,322		)	(4,332		)
Net realized gain (loss) on derivatives of Consolidated Funds	$	722		$	(2,330	)	$	(580	)
Net change in unrealized appreciation (depreciation) on derivatives of Consolidated Funds
Equity contracts:
Warrants(1)	$	—		$	26		$	(71	)
Foreign exchange contracts:
Foreign currency forward contracts	(529		)	900			(1,867		)
Asset swap - other	2,338			7,685			(2,934		)
Net change in unrealized appreciation (depreciation) on derivatives of Consolidated Funds	$	1,809		$	8,611		$	(4,872	)


(1)	Realized and unrealized gains (losses) on warrants are also reflected within investments of Consolidated Funds.

The table below sets forth the rights of offset and related arrangements associated with the Company's derivative and other financial instruments as of December 31, 2017 and 2016. The column titled "Gross Amounts Not Offset in the Statement of Financial Position" in the table below relates to derivative instruments that are eligible to be offset in accordance with applicable accounting guidance but for which management has elected not to offset in the Consolidated Statements of Financial Condition.



									Gross Amount Not Offset in the Statement of Financial Position
The Company as of December 31, 2017	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in Assets (Liabilities)		Net Amounts of Assets (Liabilities) Presented			Financial Instruments			Net Amount
Assets:
Derivatives	$	498		$	—	$	498		$	(498	)	$	—
Liabilities:
Derivatives	(2,639		)	—		(2,639		)	498			(2,141		)
Net derivative liabilities	$	(2,141	)	$	—	$	(2,141	)	$	—		$	(2,141	)



							Gross Amount Not Offset in the Statement of Financial Position
The Company as of December 31, 2016	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in Assets (Liabilities)		Net Amounts of Assets (Liabilities) Presented		Financial Instruments		Net Amount
Assets:
Derivatives	$	3,171	$	—	$	3,171	$	—	$	3,171
Liabilities:
Derivatives	—		—		—		—		—
Net derivative assets	$	3,171	$	—	$	3,171	$	—	$	3,171

The table below sets forth the rights of offset and related arrangements associated with the Consolidated Funds' derivative and other financial instruments as of December 31, 2017 and 2016. The column titled "Gross Amounts Not Offset in the Statement of Financial Position" in the table below relates to derivative instruments that are eligible to be offset in accordance with applicable accounting guidance but for which management has elected not to offset in the Consolidated Statements of Financial Condition.



										Gross Amounts Not Offset in the Statement of Financial Position
Consolidated Funds as of December 31, 2017	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in Assets (Liabilities)			Net Amounts of Assets (Liabilities) Presented			Financial Instruments		Net Amount
Assets:
Derivatives	$	1,750		$	(384	)	$	1,366		$	—	$	1,366
Liabilities:
Derivatives	(846		)	384			(462		)	—		(462		)
Net derivatives assets	$	904		$	—		$	904		$	—	$	904



										Gross Amounts Not Offset in the Statement of Financial Position
Consolidated Funds as of December 31, 2016	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in Assets (Liabilities)			Net Amounts of Assets (Liabilities) Presented			Financial Instruments		Net Amount
Assets:
Derivatives	$	2,243		$	(1,423	)	$	820		$	—	$	820
Liabilities:
Derivatives	(4,422		)	1,423			(2,999		)	—		(2,999		)
Net derivatives liabilities	$	(2,179	)	$	—		$	(2,179	)	$	—	$	(2,179	)