Fair Value

Measurement

The following tables provide fair value information related to the Company

’s financial instruments at

December 31, 2019

and

2018

	December 31, 2019
(In thousands)	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	49,630	$	49,630	$	-	$	-	$	49,630
Restricted cash and deposits		1,287		1,287		-		-		1,287
Marketable securities owned		73,101		15,245		-		57,856		73,101
Other investments		3,956		-		-		3,956		3,956
Other investments measured at net asset value (1)		10,250		-		-		-		-
Loans held for sale		2,412		-		-		2,476		2,476
Loans held for investment, net of allowance for loan losses		1,210		-		-		1,087		1,087
Total assets:	$	141,846	$	66,162	$	-	$	65,375	$	131,537

Liabilities:
Marketable securities sold, but not yet purchased	$	3,855	$	3,855	$	-	$	-	$	3,855
Notes payable		6,812		-		5,983		829		6,812
Bond payable		82,584		-		84,821		-		84,821
Total liabilities:	$	93,251	$	3,855	$	90,804	$	829	$	95,488

(

)

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 Consolidated Statements of Financial Condition.

	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

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

December 31, 2019

and

2018

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

Marketable securities owned	$	73,101	$	15,245	$	-	$	57,856	$	73,101
Other investments:
Equity investments		3,956		-		-		3,956		3,956
Investments in other funds managed by the Company (1)		5,188		-		-		-		-
Limited partnership in investments in private equity/ real estate funds (1)		5,062		-		-		-		-
Total other investments		14,206		-		-		3,956		3,956
Total assets:	$	87,307	$	15,245	$	-	$	61,812	$	77,057

Marketable securities sold, but not yet purchased	$	3,855	$	3,855	$	-	$	-	$	3,855

Total liabilities:	$	3,855	$	3,855	$	-	$	-	$	3,855

(

)

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

(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		-		-		-		-
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

As of

December 31, 2019,

marketable securities sold but

not

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

December 31, 2019,

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

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 years ended

December 31, 2019

and

2018

The Company’s Level

assets held in other investments as of

December 31, 2018

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 warehouse 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

assets in other investments is comprised of investments in equity securities of private companies. The Company determines the fair value of the investments either through (

) using the discounted cash flow approach or (

) using a market multiples approach. As of

December 31, 2019,

one

investment accounted for most of the Level

assets in other investments. For this investment, the fair value was determined using the discounted cash flows approach; the Company has a put option on this investment that 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.

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 discounted cash flow approach. 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 year ended

December 31, 2019,

the expected future cash flows of the Company's investment in CLO debt securities declined primarily due to an increase in estimated credit risks and the CLO debt securities were determined to be impaired and we recorded a

$4.2

million impairment charge which was included in principal transaction revenues on the Consolidated Statements of Operations.

For the year ended

December 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	$	-		$	-		$	57		$	57
Fair value at recognition date		67,589			9,289			3,568			80,446
Purchases		-			-			182			182
Investment distributions		(6,102	)		(883	)		-			(6,985	)
Accrued interest		7,094			103			-			7,197
Unrealized gains on investments, recognized in earnings		-			-			305			305
Unrealized losses on investments, recognized in earnings		(4,204	)		-			-			(4,204	)
Unrealized gains on investments, recognized in OCI		918			-			-			918
Unrealized losses on investments, recognized in OCI		(7,439	)		-			-			(7,439	)
Realized losses on sales, recognized in earnings		-			(112	)		(156	)		(268	)
Sales		-			(8,397	)		-			(8,397	)
Balance as of December 31, 2019	$	57,856		$	-		$	3,956		$	61,812

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 investments, a significant increase (decrease) in the credit factor or the discount rate would result in a significantly lower (higher) fair value measurement or a significant increase (decrease) in the EBITDA multiple would result in a significant higher (lower) fair value measurement. For Level

assets measured at fair value on a recurring basis as of

December 31, 2019

and

December 31, 2018,

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

Significant Unobservable Inputs

(In thousands)

Range (Weighted-average)

Fair value

Valuation Technique

Description

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

CLO debt security

Discounted cash flows

Risk adjusted discounting factor

17.5%

N/A

$ 57,856

$ -

Default rate

2.00%

N/A

Severity rate

25.0%

N/A

Prepay rate

25 CPR

N/A

Collateral liquidation price

98%-99%

N/A

Equity investments

Discounted cash flows

Credit factor

20.0%

N/A

$ 3,550

$ -

Risk adjusted discounting factor

17.7%

N/A

The Company determined the fair value of loans collateralizing ABS issued 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 ABS 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

December 31, 2019

and

December 31, 2018,

$10.3

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
(In thousands )	Redemption Frequency	Redemption Notice Period		December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018

Limited partner investments in private equity/ real estate funds	Nonredeemable		N/A	$	5,062	$	3,920	$	2,123	$	68
Investment in other funds managed by the Company	Nonredeemable		N/A	$	5,188	$	5,503	$	1,677	$	1,945

Non

recurring Fair Value Measurements

The Company's assets 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

December 31, 2019

and

December 31, 2018,

respectively.