Fair Value

Measurement

The following tables provide fair value information related to the Company

’s financial instruments at

March 31, 2019

and

December 31, 2018:

	March 31, 2019
(In thousands)	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	41,909	$	41,909	$	-	$	-	$	41,909
Restricted cash and deposits		1,221		1,221		-		-		1,221
Marketable securities owned		92,190		15,717		-		75,962		91,679
Other investments		8,349		-		-		8,349		8,349
Other investments measured at net asset value (1)		9,763		-		-		-		-
Loans held for investment, net of allowance for loan losses		4,962		-		2,318		2,668		4,986
Total assets:	$	158,394	$	58,847	$	2,318	$	86,979	$	148,144

Liabilities:
Marketable securities sold, but not yet purchased	$	2,696	$	2,696	$	-	$	-	$	2,696
Notes payable		829		-		-		829		829
Bond payable		83,600		-		86,659		-		86,659
Total liabilities:	$	87,125	$	2,696	$	86,659	$	829	$	90,184

	December 31, 2018
(In thousands)	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	70,927	$	70,927	$	-	$	-	$	70,927
Restricted cash and deposits		61,881		61,881		-		-		61,881
Marketable securities owned		18,874		18,874		-		-		18,874
Other investments		490		-		490		-		490
Other investments measured at net asset value (1)		9,423		-		-		-		-
Loans held for investment, net of allowance for loan losses		29,608		-		26,188		2,576		28,764
Loans collateralizing asset-backed securities issued, net of allowance for loan losses		1,161,463		-		1,125,310		1,173		1,126,483
Total assets:	$	1,352,666	$	151,682	$	1,151,988	$	3,749	$	1,307,419

Liabilities:
Marketable securities sold, but not yet purchased	$	4,626	$	4,626	$	-	$	-	$	4,626
Notes payable		829		-		-		829		829
Asset-backed securities issued, net of debt issuance costs		1,112,342		-		1,091,677		-		1,091,677
Bond payable		83,497		-		78,642		-		78,642
CLO VI warehouse credit facility		22,500		-		22,500		-		22,500
Total liabilities:	$	1,223,794	$	4,626	$	1,192,819	$	829	$	1,198,274

(

)

In accordance with ASC

820

10,

certain investments that are measured at fair value using the net asset value per share (or its equivalent) have

not

been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The carrying values of these lines reconciles to the parenthetical disclosure of other investments on the Statements of Financial Condition.

Recurring Fair Value Measurement

The following tables provide information related to the Company

’s assets and liabilities carried at fair value on a recurring basis at

March 31, 2019

and

December 31, 2018:

(In thousands)			March 31, 2019
	Carrying Value		Level 1		Level 2		Level 3		Total

Marketable securities owned	$	78,557	$	15,717	$	-	$	62,840	$	78,557
Other investments:
Equity investments		3,568		-		-		3,568		3,568
Investments in hedge funds managed by the Company		199		-		199		-		199
Investments in other funds managed by the Company (1)		5,045		-		-		-		-
Total investment in funds managed by the Company (1)		5,244		-		199		-		199
Limited partnership in investments in private equity/ real estate funds (1)		4,718		-		-		-		-
Total other investments		13,530		-		199		3,568		3,767
Total assets:	$	92,087	$	15,717	$	199	$	66,408	$	82,324

Marketable securities sold, but not yet purchased		2,696		2,696		-		-		2,696

Total liabilities:	$	2,696	$	2,696	$	-	$	-	$	2,696

(In thousands)			December 31, 2018
	Carrying Value		Level 1		Level 2		Level 3		Total

Marketable securities owned	$	18,874	$	18,874	$	-	$	-	$	18,874
Other investments:
Investments in hedge funds managed by the Company		490		-		490		-		490
Investments in other funds managed by the Company (1)		5,503		-		-		-		-
Total investment in funds managed by the Company (1)		5,993		-		490		-		490
Limited partnership in investments in private equity/ real estate funds (1)		3,920		-		-		-		-
Total other investments		9,913		-		490		-		490
Total assets:	$	28,787	$	18,874	$	490	$	-	$	19,364

Marketable securities sold, but not yet purchased		4,626		4,626		-		-		4,626

Total liabilities:	$	4,626	$	4,626	$	-	$	-	$	4,626

(

)

In accordance with ASC

820

10,

certain investments that are measured at fair value using the net asset value per share (or its equivalent) have

not

The following table summarizes available-for-sale securities in an unrealized position.


(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value		Total OTTI in OCI		Number of positions
CLO IV junior subordinated notes	$	27,922	$	-	$	(660	)	$	27,262	$	-		1
CLO V junior subordinated notes		26,651		-		(395	)		26,256		-		1
Total	$	54,573	$	-	$	(1,055	)	$	53,518	$	-

The following table summarizes the held-to-maturity securities in an unrealized position.

(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value		Number of positions
CLO III subordinated notes	$	13,633	$	-	$	(511	)	$	13,122		1
Total	$	13,633	$	-	$	(511	)	$	13,122

The following table summarizes the fair value and amortized cost of the available-for-sale and held-to-maturity securities by contractual maturity.

(In thousands)	Available-for-sale				Held-to-maturity
	Amortized cost		Fair value		Amortized cost		Fair value
5-10 years	$	27,922		27,262		13,633		13,122
10+ years		26,651		26,256		-		-
Total	$	54,573	$	53,518	$	13,633	$	13,122

The following table summarizes the fair value and gross unrealized losses aggregated by category and the length of time that individual securities have been in a continuous unrealized loss position.

(In thousands)	Less than 12 months					Greater than 12 months				Total
	Fair value		Gross unrealized loss			Fair value		Gross unrealized loss		Fair value		Gross unrealized loss
CLO III subordinated notes	$	13,122	$	(511	)	$	-	$	-	$	13,122	$	(511	)
CLO IV junior subordinated notes		27,262		(660	)		-		-		27,262		(660	)
CLO V junior subordinated notes		26,256		(395	)		-		-		26,256		(395	)
Total	$	66,640	$	(1,566	)	$	-	$	-	$	66,640	$	(1,566	)

As of

December 31, 2018,

both marketable securities owned and marketable securities sold, but

not

yet purchased, were primarily comprised of U.S. listed equity securities. As of

March 31, 2019,

marketable securities sold but

not

yet purchased were primarily comprised of U.S. listed securities. As of

March 31, 2019,

marketable securities was comprised of U.S. listed equity securities and CLO debt securities.

Transfers between levels of the fair value hierarchy result from changes in the observability of fair value inputs used in determining fair values for different types of financial assets and are recognized at the beginning of the reporting period in which the event or change in circumstances that caused the transfer occurs. The Company’s policy is to recognize the fair value of transfers among Levels

and

as of the end of the reporting period. For recurring fair value measurements, there were

transfers between Levels

and

for the

three

months ended

March 31, 2019

and year ended

December 31, 2018.

The Company’s Level

assets held in other investments consist of investments in hedge funds managed by HCS. The carrying value of investments in hedge funds are calculated using the equity method and approximates fair value. Earnings or losses attributable to these investments are recorded in principal transactions. These assets are considered Level

as the underlying hedge funds are mainly invested in publicly traded stocks whose value is based on quoted market prices. The Company’s proportionate share of those investments is included in the tables above.

The investments in private equity funds managed by HCS and JMPAM are recognized using the fair value option. The Company uses the reported net asset value per share as a practical expedient to estimate the fair value of the funds. The risks associated with these investments are limited to the amounts of invested capital, remaining capital commitment and any management and incentive fees receivable.

The Company determined the fair value of short-term debt, which includes notes payable and CLO credit facilities, to approximate their carrying values. This was determined as the debt has either (

) a variable interest rate tied to LIBOR and therefore reflects market conditions, or (

) a term less than

one

year and there have been

observable changes in the credit quality of the Company since the issuance of the debt. Based on the fair value methodology, the Company has identified short-term debt as Level

liabilities.

The Company's level

asset in other investments is comprised of an investment in equity securities of a private company. The Company used the net present value of discounted cash flows of the estimated value of the put option to determine the fair value of the investment. The put option is exercisable at

three

times the management fee revenue of the entity for the prior

twelve

months as of the effective date of the put option. The put option

may

be elected beginning

March 31, 2022.

The significant unobservable inputs under this approach are the estimated

twelve

months of revenues, the credit factor and the discount rate. For this investment, the Company elected the fair value option as the Company determined that the fair value of its option to put the equity securities was the best representation of the fair value of the investment. While the Company has made other equity investments, it has

not

elected the fair value option for those investments as it is impractical to determine the fair value of those investments.

The Company’s level

assets held in marketable securities consist of investments in CLO debt securities. The fair value of the CLO debt securities is determined using the net present value of discounted cash flows. The significant unobservable inputs used in the fair value measurement under this approach are the risk adjusted discount factors. The Company also uses performance and covenant compliance information provided by the CLO manager along with other risk factors including default risk, prepayment rates, interest rate risk, and credit spread risk when valuing this investment. During the

three

months ended

March 31, 2019,

the fair value of the Company's investment in CLO debt securities declined due a change that was deemed temporary. This conclusion was reached as the reduction in fair value was

not

due to credit factors and the Company believes that any reduction in fair value can be recovered before the security is sold or matures, whichever comes first.

For the

three

months ended

March 31, 2019,

the changes in level

assets measured at fair value on a recurring basis were as follows:

(In thousands)	CLO junior subordinated notes			CLO senior subordinated notes		Equity Investment		Total
Balance as of December 31, 2018	$	-		$	-	$	-	$	-
Fair value at recognition date		54,279			9,289		3,568		67,136
Accrued interest		294			34		-		328
Unrealized loss on investments, recognized in OCI		(1,055	)		-		-		(1,055	)
Balance as of March 31, 2019	$	53,518		$	9,323	$	3,568	$	66,409

For assets classified in the level

hierarchy, any changes to any of the inputs to the fair value measurement could result in a significant increase or decrease in the fair value measurement. For CLO debt securities, a significant increase (decrease) in the discount rate, default rate, and severity rate would result in a significant decrease (increase) in the fair value of the instruments. For the equity investment, a significant increase (decrease) in the credit factor or the discount rate would result in a significantly lower (higher) fair value measurement. For level

assets measured at fair value on a recurring basis as of

March 31, 2019

and

December 31, 2018,

the significant unobservable inputs used in the fair value measurements were as follows:

(In thousands)

Significant Unobservable Inputs Range (Weighted-average)

Fair value

Valuation Technique

Description

March 31, 2019

December 31, 2018

March 31, 2019

December 31, 2018

CLO debt security

Discounted cash flows

Risk adjusted discounting factor

10 - 15% (11.5%)

N/A

66,640

Default rate

0 - 2% (1.3%)

N/A

Severity rate

25%

N/A

Equity investment

Discounted cash flows

Non-performance rate

20%

N/A

3,568

Discount rate

18%

N/A

The Company determined the fair value of loans collateralizing asset-backed securities and loans held for investment identified as Level

assets primarily using the average market bid and ask quotation obtained from a loan pricing service. The valuations are received from a pricing service to which the Company subscribes. The pricing service's analysis incorporates comparable loans traded in the marketplace, the obligors industry, future business prospects, capital structure, and expected credit losses. Significant declines in the performance of the obligor would result in decrease to the fair value measurement. The fair value of loans held for investment identified as Level

assets are determined using the discounted cash flow model using the treasury rate, loan interest rate, and an internally generated risk rate.

The Company determined the fair value of asset-backed securities issued based upon pricing from published market research for equivalent-rated CLO notes. Based on the fair value methodology, the Company has identified the asset-backed securities issued as Level

liabilities.

As of

March 31, 2019

and

December 31, 2018,

$9.8

million and

$9.4

million of assets were measured using the net asset value as a practical expedient. Investments for which fair value was estimated using net asset value as a practical expedient were as follows:

				Fair Value at				Unfunded Commitments
Dollars in thousands	Redemption Frequency	Redemption Notice Period		March 31, 2019		December 31, 2018		March 31, 2019		December 31, 2018

Limited partner investments in private equity/ real estate funds	Nonredeemable		N/A	$	4,718	$	3,920	$	68	$	68
Investment in other funds managed by the Company	Nonredeemable		N/A	$	5,045	$	5,503	$	1,945	$	1,945

Non

recurring Fair Value Measurements

The Company's asse

ts that are measured at fair value on a non-recurring basis result from the application of lower of cost or market accounting or write-downs of individual assets. The Company held loans measured at fair value on a non-recurring basis of

$0.1

million

and

$1.3

million as of March

31,

2019

and

December 31, 2018

, respectively

The Company had marketable securities that were measured at fair value on a non-recurring basis as the Company has the intent and ability to hold these securities until maturity. The Company held marketable securities measured at fair-value on a non-recurring basis of $13.7 million as of March 31, 2019.