Fair Value Disclosures

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

FAIR VALUE DISCLOSURES

6. FAIR VALUE DISCLOSURES

Fair Value Option

The Company has elected to account for certain of its other financial assets at fair value under the fair value option provisions of FASB ASC 825, Financial Instruments (“FASB ASC 825”). The primary reason for electing the fair value option when it first became available in 2008, was to reduce the burden of monitoring the differences between the cost and the fair value of the Company’s investments, previously classified as available for sale securities, including the assessment as to whether the declines are temporary in nature and to further remove an element of management judgment. In addition, the election was made for certain investments that were previously required to be accounted for under the equity method because their fair value measurements were readily obtainable.

Such financial assets accounted for at fair value include:

• in general, securities that would otherwise qualify for available for sale treatment;

• in general, investments in equity method affiliates where the affiliate has all of the attributes in FASB ASC 946-10-15-2 (commonly referred to as investment companies); and

• in general, investments in residential loans.

The changes in fair value (realized and unrealized gains and losses) of these instruments for which the Company has elected the fair value option are recorded in principal transactions and other income in the consolidated statements of operations. All of the investments for which the Company has elected the fair value option are included as a component of other investments, at fair value in the consolidated balance sheets. The Company recognized net losses of $5,208 and $1,122 related to changes in fair value of investments that are included as a component of other investments, at fair value during the six months ended June 30, 2012 and 2011, respectively. The Company recognized net losses of $34 and net gains of $418 related to changes in fair value of investments that are included as a component of other investments, at fair value during the three months ended June 30, 2012 and 2011, respectively.

Fair Value Measurements

In accordance with FASB ASC 820, Fair Value Measurements and Disclosures (“FASB ASC 820”), the Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the hierarchy under FASB ASC 820 are described below:

Level 1	Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2	Financial assets and liabilities whose values are based on one or more of the following:
1.	Quoted prices for similar assets or liabilities in active markets;
2.	Quoted prices for identical or similar assets or liabilities in non-active markets;
3.	Pricing models whose inputs other than quoted prices are observable for substantially the full term of the asset or liability; or
4.	Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

Level 3 Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the level 3 category presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain financial assets or liabilities. There were no transfers between level 1 and level 2 of the fair value hierarchy during the three and six months ended June 30, 2012 and 2011. Reclassifications impacting level 3 of the fair value hierarchy are reported as transfers in or transfers out of the level 3 category as of the beginning of the quarter in which reclassifications occur.

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

FAIR VALUE MEASUREMENTS ON A RECURRING BASIS

(Dollars in Thousands)

	June 30, 2012 Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Investments-trading:
U.S. government agency MBS and CMOs	$	30,685	$	—	$	30,685	$	—
U.S. government agency debt securities		34,452		66		34,386		—
RMBS		1,178		—		1,178		—
U.S. Treasury securities		7,473		7,473		—		—
Interests in securitizations (1)		259		—		74		185
SBA loans		4,382		—		4,382		—
Corporate bonds and redeemable preferred stock		55,226		3,850		51,376		—
Foreign government bonds		99		—		99		—
Municipal bonds		18,895		—		18,895		—
Exchange traded funds		9,377		9,377		—		—
Certificates of deposit		4,079		—		4,079		—
Equity securities		87		24		—		63
Total investments-trading	$	166,192	$	20,790	$	145,154	$	248
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (2)		2,103		—		—		2,103
Star Asia (3)		32,299		—		—		32,299
Tiptree Financial Partners L.P. (4)		2,703		—		—		2,703
		37,105		—		—		37,105
Other		112		24		—		88
Total equity securities		37,217		24		—		37,193
Interests in securitizations (1)		97		—		—		97
Residential loans		229		—		229		—
Foreign currency forward contracts		66		66		—		—
Total other investments, at fair value	$	37,609	$	90	$	229	$	37,290
Liabilities:
Trading securities sold, not yet purchased:
U.S. government agency MBS	$	47	$	—	$	47	$	—
U.S. Treasury securities		10,811		10,811		—		—
Corporate bonds and redeemable preferred stock		64,651		313		64,338		—
Foreign government bonds		23		—		23		—
Municipal bonds		122		—		122		—
Exchange traded funds		1,636		1,636		—		—
Certificates of deposit		6,829		—		6,829		—
Total trading securities sold, not yet purchased	$	84,119	$	12,760	$	71,359	$	—

(1) Primarily comprised of CDOs, CLOs, and ABS.

(2) Hybrid Securities Fund - European.

(3) Real Estate Fund - Asian.

(4) Diversified Fund.

FAIR VALUE MEASUREMENTS ON A RECURRING BASIS

(Dollars in Thousands)

	December 31, 2011 Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Investments-trading:
U.S. government agency MBS and CMOs	$	7,563	$	—	$	7,563	$	—
U.S. government agency debt securities		14,600		144		14,456		—
RMBS		7,108		—		2,176		4,932
CMBS		1,587		—		1,587		—
U.S. Treasury securities		8,524		8,524		—		—
Interests in securitizations (1)		608		—		387		221
SBA loans		9,049		—		9,049		—
Corporate bonds and redeemable preferred stock		65,445		779		64,666		—
Foreign government bonds		67		—		67		—
Municipal bonds		9,225		—		9,225		—
Certificates of deposit		710		—		710		—
Equity securities		60		25		—		35
Total investments-trading	$	124,546	$	9,472	$	109,886	$	5,188
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (2)		2,370		—		—		2,370
Star Asia (3)		37,358		—		—		37,358
Tiptree Financial Partners L.P. (4)		2,533		—		—		2,533
		42,261		—		—		42,261
Other		156		24		—		132
Total equity securities		42,417		24		—		42,393
Interests in securitizations (1)		88		—		—		88
Residential loans		267		—		—		267
Total other investments, at fair value	$	42,772	$	24	$	—	$	42,748
Liabilities:
Trading securities sold, not yet purchased:
U.S. government agency MBS	$	16	$	—	$	16	$	—
U.S. Treasury securities		11,755		11,755		—		—
Corporate bonds and redeemable preferred stock		87,537		1,084		86,453		—
Foreign government bonds		158		—		158		—
Municipal bonds		143		—		143		—
Certificates of deposit		4		—		4		—
Total trading securities sold, not yet purchased	$	99,613	$	12,839	$	86,774	$	—

(1) Primarily comprised of CDOs, CLOs, and ABS.

(2) Hybrid Securities Fund - European.

(3) Real Estate Fund - Asian.

(4) Diversified Fund.

The following provides a brief description of the types of financial instruments the Company holds, the methodology for estimating fair value, and the level within the hierarchy of the estimate.

U.S. Government Agency MBS and CMOs: These are securities which are generally traded over-the-counter. The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. These valuations are based on a market approach. This is considered a level 2 valuation in the hierarchy.

In instances where the securities are either new issuances or experience illiquidity, such as CMOs and, more specifically, agency inverse interest-only securities, principal only, and fixed interest only among others, the Company may use its own internal valuation models which are based on an income approach. In some cases, new issuances are senior in nature or fairly liquid, however, due to the fact that it is a new issuance, it is difficult to obtain third party pricing and the Company uses internal models to determine fair value. In these cases, the Company will classify such an issuance as level 3 within the hierarchy until it is able to obtain third party pricing. Fair values based on internal valuation models prepared by the Company’s management are generally classified within level 3 of the valuation hierarchy. In general, the fair values of U.S. government agency and MBS and CMOs which are classified as level 3 are determined primarily using discounted cash flow and option adjusted spread methodologies. Key inputs to these models are interest rates and prepayment rates. Attributes of the underlying mortgage loans, in the case of CMOs, that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value ratios; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; and historical prepayment. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields. The level 3 classification of the fair value measurements of certain CMOs was applicable during the 2011 period.

U.S. Government Agency Debt Securities: Callable and non-callable U.S. government agency debt securities are measured primarily based on quoted market prices obtained from third party pricing services. Non-callable U.S. government agency debt securities are generally classified within level 1 and callable U.S. government agency debt securities are classified within level 2 of the valuation hierarchy.

RMBS and CMBS: The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. These valuations are based on a market approach. The Company generally classifies the fair value of these securities based on third party quotations within level 2 of the valuation hierarchy.

In instances where the Company is unable to obtain a reliable market price quotation from third party pricing services and there are no substantially similar securities that trade frequently as the securities held in trading inventory, the Company may determine the fair value of those securities using its own internal valuation models, which are based on an income approach. Fair values based on internal valuation models prepared by the Company’s management are generally classified within level 3 of the valuation hierarchy. Information utilized in the Company’s internal valuation models may include the security’s credit rating, coupon rate, estimated prepayment speeds, expected weighted average life, collateral composition, estimated future interest rates, expected credit losses, credit enhancement, and recently executed transactions. The level 3 classification of the fair value measurements of certain residential mortgage-backed securities and commercial mortgage-backed securities was applicable during the 2011 period.

U.S. Treasury Securities: U.S. Treasury securities include U.S. Treasury bonds and notes and the fair values of the U.S. Treasury securities are based on quoted prices in active markets. Valuation adjustments are not applied. The Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

Interests in Securitizations: Interests in securitizations may be comprised of CDOs, CLOs and ABS, which may include, but are not limited to, securities backed by auto loans, credit card receivables or student loans. Where the Company is able to obtain independent market quotations from at least two broker-dealers and where a price within the range of at least two broker-dealers is used or market price quotations from third party pricing services is used, interests in securitizations will generally be classified as level 2 of the valuation hierarchy. These valuations are based on a market approach. The independent market quotations from broker-dealers are generally nonbinding. The Company seeks quotations from broker-dealers that historically have actively traded, monitored, issued, and been knowledgeable about interests in securitizations. The Company generally believes that to the extent that (1) it receives two quotations in a similar range from broker-dealers knowledgeable about interests in securitizations, and (2) the Company believes the broker-dealers gather and utilize observable market information such as new issue activity in the primary market, trading activity in the secondary market, credit spreads versus historical levels, bid-ask spreads, and price consensus among market participants and sources, then classification as level 2 of the valuation hierarchy is appropriate. In the absence of two broker-dealer market quotations, a single broker-dealer market quotation may be used without corroboration of the quote in which case the Company generally classifies the fair value within level 3 of the valuation hierarchy.

If quotations are unavailable, prices observed by the Company for recently executed market transactions may be used or valuation models prepared by the Company’s management may be used, which are based on an income approach. The models prepared by the Company’s management include estimates and the valuations derived from them could differ materially from amounts realizable in an open market exchange. Fair values based on internal valuation models prepared by the Company’s management are generally classified within level 3 of the valuation hierarchy.

Establishing fair value is inherently subjective given the volatile and sometimes illiquid markets for certain interests in securitizations and requires management to make a number of assumptions, including assumptions about the future of interest rates, discount rates and the timing of cash flows. The assumptions the Company applies are specific to each security. Although the Company may rely on internal calculations to compute the fair value of certain interest in securitizations, the Company requests and considers indications of fair value from third party pricing services to assist in the valuation process.

SBA Loans: The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. The Company generally classifies these investments within level 2 of the valuation hierarchy. These valuations are based on a market approach.

Corporate Bonds, Redeemable Preferred Stock, and Foreign Government Bonds: The Company uses recently executed transactions, or third party quotations from independent pricing services to arrive at the fair value of its investments in corporate bonds, redeemable preferred stock and foreign government bonds. These valuations are based on a market approach. The Company generally classifies the fair value of these bonds within level 2 of the valuation hierarchy. In instances, where the fair values of securities are based on quoted prices in active markets (for example with redeemable preferred stock), the Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

Municipal Bonds: Municipal bonds which include obligations of U.S. states, municipalities and political subdivisions primarily include bonds or notes issued by U.S. municipalities. The Company generally values these securities using third party quotations such as market price quotations from third party pricing services. The Company generally classifies the fair value of these bonds within level 2 of the valuation hierarchy. The valuations are based on a market approach. In instances where the Company is unable to obtain reliable market price quotations from third party pricing services, the Company will use its own internal valuation models. In these cases, the Company will classify such securities as level 3 within the hierarchy until it is able to obtain third party pricing.

Exchange Traded Funds: Exchange traded funds are investment funds that trade in active markets, similar to public company stocks. The fair values of exchange traded funds are based on quoted prices in active markets. Valuation adjustments are not applied. The Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

Equity Securities: The fair value of equity securities that represent investments in publicly traded companies (common or preferred shares, options, warrants, and other equity investments) are determined using the closing price of the security as of the reporting date. These are securities which are traded on a recognized liquid exchange. This is considered a level 1 value in the valuation hierarchy. In some cases, the Company owns options or warrants in publicly traded companies when the option or warrant itself is not publicly traded. In those cases, the Company uses an internal valuation model and classifies the investment within level 3 of the valuation hierarchy. The non-exchange traded equity options and warrants are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Other equity securities represent investments in investment funds and other non-publicly traded entities. Substantially all of these other entities have the attributes of investment companies as described in FASB ASC 946-15-2. The Company estimates the fair value of these entities using the reported net asset value per share as of the reporting date in accordance with the “practical expedient” provisions related to investments in certain entities that calculate net asset value per share (or its equivalent) included in FASB ASC 820 for all entities except Star Asia. The Company generally classifies these estimates within either level 2 of the valuation hierarchy if its investment in the entity is currently redeemable or level 3 if its investment is not currently redeemable.

In the case of Star Asia, the Company utilizes a series of valuation models to determine fair value, which use both market and income based approaches and generally classifies its investment within level 3 of the valuation hierarchy. Star Asia accounts for itself as an investment company as described in ASC 946, Financial Services - Investment Companies. As an investment company, Star Asia carries its assets at fair value and reports NAV per share to its investors. However, Star Asia issued subordinated debt securities in 2009 at a significant discount to par. Upon issuance, Star Asia did not elect the fair value option for these liabilities and was not required to do so under ASC 946. Over time, it is the Company’s assessment that the fair value of the subordinated debt securities has diverged from its carrying value. Because Star Asia’s published NAV is calculated using the amortized cost of these subordinated debt securities, the Company has concluded it would be appropriate to adjust Star Asia’s reported NAV to recalculate it as if Star Asia’s subordinated debt were recorded at fair value as opposed to its historical amortized cost. The Company estimates the fair value of Star Asia’s subordinated debt securities by projecting the remaining debt cash outflows and discounting them at an estimated market rate as of the reporting date, for similar non-investment grade long term subordinated debt issuances.

The Company used discount rates of 7.50% and 7.15% as of December 31, 2011 and June 30, 2012, respectively, in determining the fair value of Star Asia’s subordinated debt securities. If the Company had used Star Asia’s unadjusted NAV, rather than the Company’s financial model described above in determining the fair value of the Company’s investment in Star Asia, the Company would have recorded its investment in Star Asia at a value of $46,031 and $41,740 as of December 31, 2011 and June 30, 2012, respectively, as compared to the fair value as determined by the Company’s internal valuation model of $37,358, and $32,299 as of December 31, 2011 and June 30, 2012, respectively.

Residential Loans: Management utilizes home price indices to value the residential loans. Previously management had considered adjustments to these indices but has elected going forward to not adjust the indices. Adjustments to the index implied a level 3 valuation. The new methodology uses an unadjusted index, which is considered an observable input and moves these investments into level 2.

Certificates of Deposit: The fair value of certificates of deposit is estimated using valuations provided by third party pricing services. Certificates of deposit are generally categorized in level 2 of the valuation hierarchy. However, in instances where the certificates of deposit are new issuances, or the payments of certificate of deposit are linked to an index, it may be difficult to obtain third party pricing and, in these cases, the Company uses internal models to determine fair value and the fair value is generally classified within level 3 of the valuation hierarchy. The level 3 classification of the fair value measurements of certain certificates of deposit was applicable during the 2011 period.

Derivatives:

Foreign Currency Forward Contracts

Foreign currency forward contracts are exchange-traded derivatives which transact on an exchange that is deemed to be active. The fair value of the foreign currency forward contracts is based on current quoted market prices. Valuation adjustments are not applied. These are considered a Level 1 value in the hierarchy. See note 7.

TBAs

The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. TBAs are generally classified within level 2 of the fair value hierarchy. If there is limited transaction activity or less transparency to observe market based inputs to valuation models, TBAs are classified in level 3 of the fair value hierarchy. U.S. government agency MBS and CMOs include TBAs. Unrealized gains on TBAs are included in investments-trading on the Company’s consolidated balance sheets and unrealized losses on TBAs are included in trading securities sold, not yet purchased on the Company’s consolidated balance sheets. See note 7.

Level 3 Financial Assets and Liabilities

Financial Instruments Measured at Fair Value on a Recurring Basis

The following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which the Company has utilized level 3 inputs to determine fair value for the six and three months ended June 30, 2012 and 2011.

LEVEL 3 INPUTS

Six Months Ended June 30, 2012

(Dollars in Thousands)

	January  1, 2012		Total gains and losses included in earnings									Purchases		Sales			June  30, 2012		Change  in unrealized gains/(losses) for the  period included in earnings (1)
			Net trading			Principal transactions and other income			Transfers out of Level 3
Assets:
Investments-trading:
RMBS	$	4,932	$	17		$	—		$	—		$	171	$	(5,120	)	$	—	$	—
Interests in securitizations (2)		221		(58	)		—			—			2,225		(2,203	)		185		(37	)
Equity securities		35		(98	)		—			—			126		—			63		(98	)
Total investments-trading	$	5,188	$	(139	)	$	—			—		$	2,522	$	(7,323	)	$	248	$	(135	)
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (3)	$	2,370	$	—		$	(267	)		—		$	—	$	—		$	2,103	$	(267	)
Star Asia (4)		37,358		—			(5,059	)		—			—		—			32,299		(5,059	)
Tiptree Financial Partners, L.P. (5)		2,533		—			170			—			—		—			2,703		170
		42,261		—			(5,156	)		—			—		—			37,105		(5,156	)
Other		132		—			(44	)		—			—		—			88		(44	)
Total equity securities		42,393		—			(5,200	)		—			—		—			37,193		(5,200	)
Interests in securitizations (2)		88		—			9			—			—		—			97		9
Residential loans		267		—			—			(267	)		—		—			—		—
Total other investments, at fair value	$	42,748	$	—		$	(5,191	)	$	(267	)	$	—	$	—		$	37,290	$	(5,191	)

(1) Represents the change in unrealized gains and losses for the period included in earnings for assets held at the end of the reporting period.

(2) Primarily comprised of CDOs, CLOs, and ABS.

(3) Hybrid Securities Funds - European.

(4) Real Estate Funds - Asian.

(5) Diversified Fund.

LEVEL 3 INPUTS

Six Months Ended June 30, 2011

(Dollars in Thousands)

	January  1, 2011		Total gains and losses included in earnings					Transfers into Level 3		Purchases		Sales (1)			June  30, 2011		Change  in unrealized gains/(losses) for the  period included in earnings (2)
			Net trading		Principal transactions and other income
Assets:
Investments-trading:
U.S. government agency MBS and CMOs	$	68,885	$	452	$	—		$	4,332	$	20,599	$	(85,649	)	$	8,619	$	602
RMBS		—		—		—			—		1,473		—			1,473		—
Commercial mortgage-backed securities		—		114		—			—		1,233		—			1,347		114
Interests in securitizations (3)		4,500		6,238		—			—		8,101		(11,548	)		7,291		340
Certificates of deposit		—		3		—			—		761		(763	)		1		2
Equity securities		—		30		—			—		70		(2	)		98		30
Total investments-trading	$	73,385	$	6,837	$	—		$	4,332	$	32,237	$	(97,962	)	$	18,829	$	1,088
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (4)	$	1,258	$	—	$	1,619		$	—	$	533	$	—		$	3,410	$	1,619
Star Asia (5)		38,025		—		(2,014	)		—		226		(476	)		35,761		(2,014	)
Tiptree Financial Partners, L.P.(6)		2,480		—		71			—		—		—			2,551		71
		41,763		—		(324	)		—		759		(476	)		41,722		(324	)
Investment Funds
Deep Value (7)		28		—		(9	)		—		—		(19	)		—		—
		28		—		(9	)		—		—		(19	)		—		—
Other		500		—		(212	)		—		36		(59	)		265		(212	)
Total equity securities		42,291		—		(545	)		—		795		(554	)		41,987		(536	)
Interests in securitizations (3)		105		—		—			—		—		—			105		—
Residential loans		303		—		5			—		—		(32	)		276		5
Total other investments, at fair value	$	42,699	$	—	$	(540	)	$	—	$	795	$	(586	)	$	42,368	$	(531	)

(1) Includes return of principal/capital of interests in U.S. government agency MBS and CMOs, securitizations, investment funds and residential loans. The sale of $476 attributable to Star Asia represents the transfer of 54,452 shares of Star Asia to an employee for services rendered during 2010. See note 19.

(2) Represents the change in unrealized gains and losses for the period included in earnings for assets held at the end of the reporting period.

(3) Primarily comprised of CDOs and CLOs.

(4) Hybrid Securities Funds - European.

(5) Real Estate Funds - Asian.

(6) Diversified Fund.

(7) Real Estate Funds.

LEVEL 3 INPUTS

Three Months Ended June 30, 2012

(Dollars in Thousands)

	March  31, 2012		Total gains and losses included in earnings								Purchases		Sales			June  30, 2012		Change  in unrealized gains/(losses) for the  period included in earnings (1)
			Net trading			Principal transactions and other income			Transfers out of Level 3
Assets:
Investments-trading:
Interests in securitizations (2)	$	2,409	$	(21	)	$	—		$	—	$	—	$	(2,203	)	$	185	$	—
Equity securities		167		(104	)		—			—		—		—			63		(104	)
Total investments-trading	$	2,576	$	(125	)	$	—			—	$	—	$	(2,203	)	$	248	$	(104	)
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (3)	$	2,348	$	—		$	(245	)	$	—	$	—	$	—		$	2,103	$	(245	)
Star Asia (4)		32,118		—			181			—		—		—			32,299		181
Tiptree Financial Partners, L.P. (5)		2,650		—			53			—		—		—			2,703		53
		37,116		—			(11	)		—		—		—			37,105		(11	)
Other		82		—			6			—		—		—			88		6
Total equity securities		37,198		—			(5	)		—		—		—			37,193		(5	)
Interests in securitizations (2)		97		—			—			—		—		—			97		—
Total other investments, at fair value	$	37,295	$	—		$	(5	)	$	—	$	—	$	—		$	37,290	$	(5	)

(1) Represents the change in unrealized gains and losses for the period included in earnings for assets held at the end of the reporting period.

(2) Primarily comprised of CDOs, CLOs, and ABS.

(3) Hybrid Securities Funds - European.

(4) Real Estate Funds - Asian.

(5) Diversified Fund.

LEVEL 3 INPUTS

Three Months Ended June 30, 2011

(Dollars in Thousands)

	March  31, 2011		Total gains and losses included in earnings						Transfers into Level 3		Purchases		Sales (1)			June  30, 2011		Change  in unrealized gains/(losses) for the  period included in earnings (2)
			Net trading			Principal transactions and other income
Assets:
Investments-trading:
U.S. government agency MBS and CMOs	$	12,206	$	1,024		$	—		$	—	$	7,283	$	(11,894	)	$	8,619	$	706
RMBS		—		—			—			—		1,473		—			1,473		—
Commercial mortgage-backed securities		—		114			—			—		1,233		—			1,347		114
Interests in securitizations (3)		1,857		1,000			—			—		7,016		(2,582	)		7,291		44
Certificates of deposit		393		—			—			—		—		(392	)		1		—
Equity securities		74		(46	)		—			—		70		—			98		(46	)
Total investments-trading	$	14,530	$	2,092		$	—		$	—	$	17,075	$	(14,868	)	$	18,829	$	818
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (4)	$	2,033	$	—		$	844		$	—	$	533	$	—		$	3,410	$	844
Star Asia (5)		35,094		—			667			—		—		—			35,761		667
Tiptree Financial Partners, L.P. (6)		2,511		—			40			—		—		—			2,551		40
		39,638		—			1,551			—		533		—			41,722		1,551
Investment Funds
Deep Value (7)		28		—			(9	)		—		—		(19	)		—		—
		28		—			(9	)		—		—		(19	)		—		—
Other		553		—			(265	)		—		36		(59	)		265		(265	)
Total equity securities		40,219		—			1,277			—		569		(78	)		41,987		1,286
Interests in securitizations (3)		105		—			—			—		—		—			105		—
Residential loans		287		—			3			—		—		(14	)		276		3
Total other investments, at fair value	$	40,611	$	—		$	1,280		$	—	$	569	$	(92	)	$	42,368	$	1,289

(1) Includes return of principal/capital of interests in U.S. government agency MBS and CMOs, securitizations, investment funds and residential loans.

(2) Represents the change in unrealized gains and losses for the period included in earnings for assets held at the end of the reporting period.

(3) Primarily comprised of CDOs and CLOs.

(4) Hybrid Securities Funds - European.

(5) Real Estate Funds - Asian.

(6) Diversified Fund.

(7) Real Estate Funds.

The circumstances that would result in transferring certain financial instruments from level 2 to level 3 of the valuation hierarchy would typically include what the Company believes to be a decrease in the availability, utility, and reliability of observable market information such as new issue activity in the primary market, trading activity in the secondary market, credit spreads versus historical levels, bid-ask spreads, and price consensus among market participants and sources.

During 2009, the liquidity and transparency surrounding structured credit products, such as interests in securitizations, continued to diminish. The absence of new issue activity in the primary market led to a continually decreasing level of transparency, as seasoned secondary issuances could not be analyzed on a comparative basis relative to new issuances. In addition, diminished trading activity in the secondary market also led the Company to believe that broker-dealer quotations may not be based on observable and reliable market information. The Company has maintained this assessment during 2012 and has not transferred any of these assets out of level 3 of the valuation hierarchy.

Investments-trading: During the six and three months ended June 30, 2012, there were no transfers into or out of level 3 of the valuation hierarchy.

During the six months ended June 30, 2011, there were no transfers out of level 3 and there was one transfer of $4,332 into level 3 of the valuation hierarchy related to one security. In this case, as of December 31, 2010, the Company was able to obtain a reliable quote from a third party pricing service. During the first half of 2011, the Company was unable to obtain a reliable quote and relied upon an internal valuation model for that same security. During the three months ended June 30, 2011, there were no transfers into or out of level 3.

Other investments, at fair value: During the six months ended June 30, 2012, the Company transferred $267 in residential loans from level 3 to level 2 of the valuation hierarchy. During the three months ended June 30, 2012, there were no transfers into or out of level 3 of the valuation hierarchy.

During the six and three months ended June 30, 2011, there were no transfers into or out of level 3 of the valuation hierarchy.

The following table provides the quantitative information about level 3 fair value measurements as of June 30, 2012:

QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS

(Dollars in Thousands)

	Fair Value at June  30, 2012		Valuation Technique		Significant Unobservable Inputs	Weighted average			Range of Significant Inputs
Assets:
Investments-trading:
Equity securities	$	63		Black Scholes	Expected Life Volatility Dividend Yield		5 years 25 0	%  %		5 years 25 0	%  %
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
Star Asia	$	32,299		Adjusted NAV	Discount rate on debt		7.15	%		7.15	%
Other	$	88		Black Scholes	Expected Life Volatility Dividend Yield		5.2 years 25 0	%  %		5-10 years 25 0	%  %

Investments in Certain Entities That Calculate Net Asset Value Per Share (Or Its Equivalent)

The following table presents additional information about investments in certain entities that calculate net asset value per share (regardless of whether the “practical expedient” provisions of FASB ASC 820 have been applied) which are measured at fair value on a recurring basis at June 30, 2012 and December 31, 2011.

FAIR VALUE MEASUREMENTS OF INVESTMENTS IN CERTAIN ENTITIES

THAT CALCULATE NET ASSET VALUE PER SHARE (OR ITS EQUIVALENT)

	Fair Value at June 30, 2012 (dollars in thousands)		Unfunded Commitments		Redemption Frequency (if Currently Eligible)		Redemption Notice  Period
Other Investment Vehicles:
EuroDekania (a)	$	2,103		N/A		N/A		N/A
Star Asia (b)		32,299		N/A		N/A		N/A
Tiptree Financial Partners, L.P. (c)		2,703		N/A		N/A		N/A
	$	37,105

	Fair Value at December 31, 2011 (dollars in thousands)		Unfunded Commitments		Redemption Frequency (if Currently Eligible)		Redemption Notice  Period
Other Investment Vehicles:
EuroDekania (a)	$	2,370		N/A		N/A		N/A
Star Asia (b)		37,358		N/A		N/A		N/A
Tiptree Financial Partners, L.P. (c)		2,533		N/A		N/A		N/A
	$	42,261

N/A - Not applicable.

(a) EuroDekania’s investment strategy is to make investments in hybrid capital securities that have attributes of debt and equity, primarily in the form of subordinated debt issued by insurance companies, banks and bank holding companies based primarily in Western Europe (“EuroTruPS”); widely syndicated leveraged loans issued by European corporations CMBS, including subordinated interests in first mortgage real estate loans (“B-Notes”); and RMBS and other ABS backed by consumer and commercial receivables. The majority of the assets are denominated in Euros and U.K. Pounds Sterling. The fair value of the investment in this category has been estimated using the net asset value per share of the investment in accordance with the “practical expedient” provisions of FASB ASC 820.

(b) Star Asia’s investment strategy is to make investments in Asian real estate structured finance investments, including CMBS, corporate debt of REITs and real estate operating companies, whole loans, mezzanine loans and other commercial real estate fixed income investments. The fair value of the investment in this category has been estimated using a series of internal valuation models that use both the market and income approach. If the Company had used Star Asia’s unadjusted reported net asset value to determine its fair value, the carrying value of its investment in Star Asia would have been $41,740 as of June 30, 2012 and $46,031 as of December 31, 2011.

(c) The investment strategy of Tiptree Financial Partners, L.P. (“Tiptree”) is currently focused on investing in (a) specialty finance companies; (b) alternative asset management companies, and (c) diversified credit assets and related equity interests. Tiptree primarily seeks to acquire majority ownership interests in its investees. The fair value of the investment in this category has been estimated using the net asset value per share of the investment in accordance with the “practical expedient” provisions of FASB ASC 820. The Company uses the latest reported net asset value from Tiptree. From time to time, the net asset value may be one quarter in arrears.