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Investment Securities

6 Months Ended

Jun. 30, 2020

Note 4 — Investment Securities

Our investment securities as of June 30, 2020, and December 31, 2019, are summarized as follows (in millions):


	June 30,		December 31,
	2020		2019
Seeded investment products:
Consolidated VIEs	$	632.2	$	924.8
Consolidated VREs		15.2		29.9
Unconsolidated VIEs and VREs		57.3		31.4
Separate accounts		58.4		60.8
Pooled investment funds		0.1		0.1
Total seeded investment products		763.2		1,047.0
Investments related to deferred compensation plans		82.8		125.9
Other investments		5.3		5.4
Total investment securities	$	851.3	$	1,178.3

Trading Securities

Net unrealized gains on investment securities held as of the three and six months ended June 30, 2020 and 2019, are summarized as follows (in millions):


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Unrealized gains on investment securities held at period end	$	48.1	$	4.6	$	8.6	$	15.7

Derivative Instruments

We maintain an economic hedge program that uses derivative instruments to mitigate against market volatility of certain seeded investments by using index and commodity futures (“futures”), index swaps, total return swaps (“TRSs”) and credit default swaps. Foreign currency exposures associated with our seeded investment products are also hedged by using foreign currency forward contracts. We also have a net investment hedge related to foreign currency translation on hedged seed investments denominated in currencies other than our functional currency.

We were party to the following derivative instruments as of June 30, 2020, and December 31, 2019 (in millions):


	Notional value
	June 30, 2020		December 31, 2019
Futures	$	131.4	$	222.9
Credit default swaps		297.0		143.0
Total return swaps		35.7		46.3
Foreign currency forward contracts		228.4		327.8

The derivative instruments are not designated as hedges for accounting purposes, with the exception of certain foreign currency forward contracts used for net investment hedging. Changes in fair value of the futures, index swaps, TRSs and credit default swaps are recognized in investment gains (losses), net in our Condensed Consolidated Statements of Comprehensive Income (Loss). Changes in the fair value of the foreign currency forward contracts designated as hedges for accounting purposes are recognized in other comprehensive income (loss), net of tax on our Condensed Consolidated Statements of Comprehensive Income (Loss).

Derivative assets and liabilities are generally recognized on a gross basis and included in other current assets or accounts payable and accrued liabilities on our Condensed Consolidated Balance Sheets. As of June 30, 2020, derivative assets and liabilities were $6.3 million and $8.1 million, respectively.

We recognized the following foreign currency translation losses on hedged seed investments denominated in currencies other than our functional currency and gains associated with foreign currency forward contracts under net investment hedge accounting for the six months ended June 30, 2020 and 2019 (in millions):


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Foreign currency translation	$	5.3	$	(1.2)	$	8.3	$	(0.9)
Foreign currency forward contracts		(5.3)		1.2		(8.3)		0.9
Total	$	—	$	—	$	—	$	—

In addition to using derivative instruments to mitigate against market volatility of certain seeded investments, we also occasionally engage in short sales of securities. As of June 30, 2020, and December 31, 2019, the fair value of securities

sold but not yet purchased were $12.5 million and $26.5 million, respectively. The cash received from the short sale and the obligation to repurchase the shares are classified in other current assets and accounts payable and accrued liabilities on our Condensed Consolidated Balance Sheets, respectively. Fair value adjustments are recognized in investment gains (losses), net on our Condensed Consolidated Statements of Comprehensive Income (Loss).

Derivative Instruments in Consolidated Seeded Investment Products

Certain of our consolidated seeded investment products utilize derivative instruments to contribute to the achievement of defined investment objectives. These derivative instruments are classified within other current assets or accounts payable and accrued liabilities on our Condensed Consolidated Balance Sheets. Gains and losses on these derivative instruments are classified within investment gains (losses), net in our Condensed Consolidated Statements of Comprehensive Income (Loss).

Our consolidated seeded investment products were party to the following derivative instruments as of June 30, 2020, and December 31, 2019 (in millions):


	Notional Value
	June 30, 2020		December 31, 2019
Futures	$	248.8	$	88.3
Contracts for differences		1.2		15.5
Credit default swaps		18.8		0.1
Total return swaps		—		0.1
Interest rate swaps		38.5		19.4
Options		7.1		1.0
Foreign currency forward contracts		383.2		167.5

Investment Gains (Losses), Net

Investment gains (losses), net on our Condensed Consolidated Statements of Comprehensive Income (Loss) included the following for the three and six months ended June 30, 2020 and 2019 (in millions):


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Seeded investment products and derivatives, net	$	11.1	$	0.8	$	6.0	$	3.4
Third-party ownership interests in seeded investment products		29.0		2.6		(9.4)		8.2
Long Tail Alpha		4.4		0.3		5.7		0.7
Deferred equity plan		4.7		1.7		(2.6)		5.4
Other		1.1		(0.6)		0.1		0.4
Investment gains (losses), net	$	50.3	$	4.8	$	(0.2)	$	18.1

Cash Flows

Cash flows related to investment securities for the six months ended June 30, 2020 and 2019, are summarized as follows (in millions):

Six months ended June 30,

2020

2019

Sales,

Purchases

settlements

Purchases

settlements

and

settlements

maturities

settlements

maturities

Investment securities by consolidated seeded investment products

(239.6)

2.2

(269.1)

246.9

Investment securities

(53.7)

131.2

(58.9)

116.4