Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2020

Information about Significant Unobservable Inputs used in Fair Value Measurement

The following table summarizes quantitative information about the significant unobservable inputs used in the fair value measurement of the Company's Level III financial instruments as of March 31, 2020:



	Valuation			Weighted
	Technique	Unobservable Input	Range	Average (1)
Assets
Financial instruments and other inventory positions owned:
Derivative contracts:
Interest rate locks	Discounted cash flow	Premium over the MMD curve in basis points ("bps") (2)	5 - 35 bps	15.4 bps
Investments at fair value:
Equity securities in private companies	Market approach	Revenue multiple (2)	3 - 5 times	3.8 times
		EBITDA multiple (2)	10 - 20 times	16.1 times

Liabilities
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts:
Interest rate locks	Discounted cash flow	Premium over the MMD curve in bps (3)	8 - 62 bps	51.7 bps

Uncertainty of fair value measurements:


(1)	Unobservable inputs were weighted by the relative fair value of the financial instruments.


(2)	Significant increase/(decrease) in the unobservable input in isolation would have resulted in a significantly higher/(lower) fair value measurement.


(3)	Significant increase/(decrease) in the unobservable input in isolation would have resulted in a significantly lower/(higher) fair value measurement.

Valuation of Financial Instruments by Pricing Observability Levels

The following table summarizes the valuation of the Company's financial instruments by pricing observability levels defined in FASB Accounting Standards Codification Topic 820, "Fair Value Measurement" ("ASC 820") as of March 31, 2020:



								Counterparty
								and Cash
								Collateral
(Amounts in thousands)	Level I		Level II		Level III			Netting (1)			Total
Assets
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	165	$	2,662	$	—		$	—		$	2,827
Convertible securities	—		117,915		—			—			117,915
Fixed income securities	—		84,651		—			—			84,651
Municipal securities:
Taxable securities	—		26,260		—			—			26,260
Tax-exempt securities	—		214,817		—			—			214,817
Short-term securities	—		63,406		—			—			63,406
Mortgage-backed securities	—		—		13			—			13
U.S. government agency securities	—		68,076		—			—			68,076
U.S. government securities	407		—		—			—			407
Derivative contracts	—		264,559		1,975			(233,563		)	32,971
Total financial instruments and other inventory positions owned	572		842,346		1,988			(233,563		)	611,343

Cash equivalents	4,916		—		—			—			4,916

Investments at fair value	13,838		—		120,730		(2)	—			134,568
Total assets	$	19,326	$	842,346	$	122,718		$	(233,563	)	$	750,827

Liabilities
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	50,872	$	23	$	—		$	—		$	50,895
Fixed income securities	—		13,995		—			—			13,995
U.S. government agency securities	—		881		—			—			881
U.S. government securities	73,207		—		—			—			73,207
Derivative contracts	1,386		254,775		5,557			(253,578		)	8,140
Total financial instruments and other inventory positions sold, but not yet purchased	$	125,465	$	269,674	$	5,557		$	(253,578	)	$	147,118


(1)	Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.


(2)	Includes noncontrolling interests of $66.5 million primarily attributable to unrelated third party ownership in consolidated merchant banking funds.

The following table summarizes the valuation of the Company's financial instruments by pricing observability levels defined in ASC 820 as of December 31, 2019:



								Counterparty
								and Cash
								Collateral
(Amounts in thousands)	Level I		Level II		Level III			Netting (1)			Total
Assets
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	469	$	2,577	$	—		$	—		$	3,046
Convertible securities	—		146,406		—			—			146,406
Fixed income securities	—		28,176		—			—			28,176
Municipal securities:
Taxable securities	—		22,570		—			—			22,570
Tax-exempt securities	—		222,192		—			—			222,192
Short-term securities	—		67,901		—			—			67,901
Mortgage-backed securities	—		—		13			—			13
U.S. government agency securities	—		51,773		—			—			51,773
U.S. government securities	77,303		—		—			—			77,303
Derivative contracts	—		209,119		8			(188,745		)	20,382
Total financial instruments and other inventory positions owned	77,772		750,714		21			(188,745		)	639,762

Cash equivalents	226,744		—		—			—			226,744

Investments at fair value	17,658		—		132,329		(2)	—			149,987
Total assets	$	322,174	$	750,714	$	132,350		$	(188,745	)	$	1,016,493

Liabilities
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	88,794	$	5,242	$	—		$	—		$	94,036
Fixed income securities	—		10,311		—			—			10,311
U.S. government agency securities	—		9,935		—			—			9,935
U.S. government securities	67,090		—		—			—			67,090
Derivative contracts	—		198,604		1,563			(196,114		)	4,053
Total financial instruments and other inventory positions sold, but not yet purchased	$	155,884	$	224,092	$	1,563		$	(196,114	)	$	185,425


(1)	Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.

(2)

Includes noncontrolling interests of $75.2 million primarily attributable to unrelated third party ownership in consolidated merchant banking funds.

Changes in Fair Value Associated with Level III Financial Instruments

The following tables summarize the changes in fair value associated with Level III financial instruments held at the beginning or end of the periods presented:



																				Unrealized gains/
																				(losses) for assets/
	Balance at											Realized			Unrealized			Balance at		liabilities held at
	December 31,								Transfers			gains/			gains/			March 31,		March 31,
(Amounts in thousands)	2019		Purchases			Sales			out			(losses)			(losses)			2020		2020
Assets
Financial instruments and other inventory positions owned:
Mortgage-backed securities	$	13	$	—		$	—		$	—		$	—		$	—		$	13	$	—
Derivative contracts	8		295			—			—			(295		)	1,967			1,975		1,975
Total financial instruments and other inventory positions owned	21		295			—			—			(295		)	1,967			1,988		1,975

Investments at fair value	132,329		283			(165		)	(130		)	(227		)	(11,360		)	120,730		(11,585		)
Total assets	$	132,350	$	578		$	(165	)	$	(130	)	$	(522	)	$	(9,393	)	$	122,718	$	(9,610	)

Liabilities
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts	$	1,563	$	(3,141	)	$	351		$	—		$	2,790		$	3,994		$	5,557	$	5,547
Total financial instruments and other inventory positions sold, but not yet purchased	$	1,563	$	(3,141	)	$	351		$	—		$	2,790		$	3,994		$	5,557	$	5,547



																			Unrealized gains/
																			(losses) for assets/
	Balance at										Realized			Unrealized			Balance at		liabilities held at
	December 31,								Transfers		gains/			gains/			March 31,		March 31,
(Amounts in thousands)	2018		Purchases			Sales			out		(losses)			(losses)			2019		2019
Assets
Financial instruments and other inventory positions owned:
Mortgage-backed securities	$	15	$	—		$	(2	)	$	—	$	(27	)	$	28		$	14	$	—
Derivative contracts	229		—			(336		)	—		336			(229		)	—		—
Total financial instruments and other inventory positions owned	244		—			(338		)	—		309			(201		)	14		—

Investments at fair value	107,792		—			—			—		—			86			107,878		86
Total assets	$	108,036	$	—		$	(338	)	$	—	$	309		$	(115	)	$	107,892	$	86

Liabilities
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts	$	4,202	$	(5,603	)	$	—		$	—	$	5,603		$	20		$	4,222	$	4,222
Total financial instruments and other inventory positions sold, but not yet purchased	$	4,202	$	(5,603	)	$	—		$	—	$	5,603		$	20		$	4,222	$	4,222