5.	FAIR VALUE MEASUREMENTS

Fair Value Hierarchy of Investments and Certain Other Assets and Liabilities—Lazard categorizes its investments and certain other assets and liabilities recorded at fair value into a three-level fair value hierarchy as follows:

Level 1.

Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that Lazard has the ability to access.

Level 2.

Assets and liabilities whose values are based on (i) quoted prices for similar assets or liabilities in an active market, or quoted prices for identical or similar assets or liabilities in non-active markets, or (ii) inputs other than quoted prices that are directly observable or derived principally from, or corroborated by, market data.

Level 3.

Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect our own assumptions about the assumptions a market participant would use in pricing the asset or liability. Items included in Level 3 include securities or other financial assets whose trading volume and level of activity have significantly decreased when compared with normal market activity and there is no longer sufficient frequency or volume to provide pricing information on an ongoing basis.

The fair value of equities is classified as Level 1 or Level 3 as follows: marketable equity securities are classified as Level 1 and are valued based on the last trade price on the primary exchange for that security as provided by external pricing services; equity securities in private companies are generally classified as Level 3.

The fair value of investments in alternative investment funds, debt funds and equity funds is classified as Level 1 when the fair values are primarily based on the publicly reported closing price for the fund.

The fair value of securities sold, not yet purchased, is classified as Level 1 when the fair values are based on unadjusted quoted prices in active markets.

The fair value of the contingent consideration liability is classified as Level 3 and the estimated fair value of the liability is remeasured at each reporting period. The inputs used to derive the fair value of the contingent consideration include the application of probabilities when assessing certain performance thresholds for the relevant periods. Any change in the fair value is recognized in “amortization and other acquisition-related costs” in the condensed consolidated statement of operations. Our business acquisitions may involve the potential payment of contingent consideration upon the achievement of certain performance thresholds. The contingent consideration liability is initially recorded at the estimated fair value of the contingent payments on the acquisition date and is included in “other liabilities” on the condensed consolidated statements of financial condition. See Note 10.

The fair value of derivatives entered into by the Company is classified as Level 2 and is based on the values of the related underlying assets, indices or reference rates as follows: the fair value of forward foreign currency exchange rate contracts is a function of the spot rate and the interest rate differential of the two currencies from the trade date to settlement date; the fair value of total return swaps is based on the change in fair value of the related underlying equity security, financial instrument or index and a specified notional holding; the fair value of interest rate swaps is based on the interest rate yield curve; and the fair value of derivative liabilities related to LFI and other similar deferred compensation arrangements is based on the value of the underlying investments, adjusted for forfeitures. See Note 6.

Investments Measured at Net Asset Value (“NAV”)—As a practical expedient, the Company uses NAV or its equivalent to measure the fair value of certain investments. NAV is primarily determined based on information provided by external fund administrators. The Company’s investments valued at NAV as a practical expedient in (i) alternative investment funds, debt funds and equity funds are redeemable in the near term, and (ii) private equity funds are not redeemable in the near term as a result of redemption restrictions.

The following tables present, as of September 30, 2017 and December 31, 2016, the classification of (i) investments and certain other assets and liabilities measured at fair value on a recurring basis within the fair value hierarchy and (ii) investments measured at NAV or its equivalent as a practical expedient:

	September 30, 2017
	Level 1		Level 2		Level 3		NAV		Total
Assets:
Investments:
Debt	$	6	$	-	$	-	$	-	$	6
Equities		44,634		-		1,547		-		46,181
Funds:
Alternative investments		15,798		-		-		7,720		23,518
Debt		86,894		-		-		6		86,900
Equity		191,144		-		-		49		191,193
Private equity		-		-		-		78,376		78,376
Derivatives		-		3,443		-		-		3,443
Total	$	338,476	$	3,443	$	1,547	$	86,151	$	429,617
Liabilities:
Securities sold, not yet purchased	$	5,921	$	-	$	-	$	-	$	5,921
Contingent consideration liability		-		-		24,927		-		24,927
Derivatives		-		189,142		-		-		189,142
Total	$	5,921	$	189,142	$	24,927	$	-	$	219,990

	December 31, 2016
	Level 1		Level 2		Level 3		NAV		Total
Assets:
Investments:
Equities	$	39,509	$	-	$	1,508	$	-	$	41,017
Funds:
Alternative investments		25,316		-		-		7,125		32,441
Debt		74,591		-		-		6		74,597
Equity		188,229		-		-		39		188,268
Private equity		-		-		-		122,421		122,421
Derivatives		-		1,993		-		-		1,993
Total	$	327,645	$	1,993	$	1,508	$	129,591	$	460,737
Liabilities:
Securities sold, not yet purchased	$	4,482	$	-	$	-	$	-	$	4,482
Contingent consideration liability		-		-		22,608		-		22,608
Derivatives		-		182,223		-		-		182,223
Total	$	4,482	$	182,223	$	22,608	$	-	$	209,313

The following tables provide a summary of changes in fair value of the Company’s Level 3 assets and liabilities for the three month and nine month periods ended September 30, 2017 and 2016:

	Three Months Ended September 30, 2017
	Beginning Balance		Net Unrealized/ Realized Gains/Losses Included In Earnings (a)			Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments		Ending Balance
Assets:
Investments:
Equities	$	3,072	$	130		$	-	$	(1,661	)	$	6	$	1,547
Total Level 3 Assets	$	3,072	$	130		$	-	$	(1,661	)	$	6	$	1,547

Liabilities:
Contingent consideration liability	$	25,539	$	(612	)	$	-	$	-		$	-	$	24,927
Total Level 3 Liabilities	$	25,539	$	(612	)	$	-	$	-		$	-	$	24,927

	Nine Months Ended September 30, 2017
	Beginning Balance		Net Unrealized/ Realized Gains/Losses Included In Earnings (a)		Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments		Ending Balance
Assets:
Investments:
Equities	$	1,508	$	4	$	1,661	$	(1,669	)	$	43	$	1,547
Total Level 3 Assets	$	1,508	$	4	$	1,661	$	(1,669	)	$	43	$	1,547

Liabilities:
Contingent consideration liability	$	22,608	$	2,568	$	-	$	(249	)	$	-	$	24,927
Total Level 3 Liabilities	$	22,608	$	2,568	$	-	$	(249	)	$	-	$	24,927

	Three Months Ended September 30, 2016
	Beginning Balance		Net Unrealized/ Realized Gains/Losses Included In Earnings (a)		Purchases/ Acquisitions		Sales/ Dispositions		Foreign Currency Translation Adjustments		Ending Balance
Assets:
Investments:
Equities	$	1,298	$	2	$	-	$	-	$	21	$	1,321
Total Level 3 Assets	$	1,298	$	2	$	-	$	-	$	21	$	1,321

Liabilities:
Contingent consideration liability	$	-	$	28	$	17,000	$	-	$	-	$	17,028
Total Level 3 Liabilities	$	-	$	28	$	17,000	$	-	$	-	$	17,028

	Nine Months Ended September 30, 2016
	Beginning Balance		Net Unrealized/ Realized Gains/Losses Included In Earnings (a)		Purchases/ Acquisitions		Sales/ Dispositions		Foreign Currency Translation Adjustments		Ending Balance
Assets:
Investments:
Equities	$	1,276	$	12	$	-	$	-	$	33	$	1,321
Total Level 3 Assets	$	1,276	$	12	$	-	$	-	$	33	$	1,321

Liabilities:
Contingent consideration liability	$	-	$	28	$	17,000	$	-	$	-	$	17,028
Total Level 3 Liabilities	$	-	$	28	$	17,000	$	-	$	-	$	17,028

(a)

Earnings recorded in “other revenue” for investments in equities for the three month and nine month periods ended September 30, 2017 and the three month and nine month periods ended September 30, 2016 include net unrealized gains of $130, $2, $2 and $7, respectively. Earnings recorded in “amortization and other acquisition-related costs” for the contingent consideration liability for the three month and nine month periods ended September 30, 2017 and the three month and nine month periods ended September 30, 2016 include unrealized gains (losses) of $612, $(2,568), $(28) and $(28), respectively.

There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy during the three month and nine month periods ended September 30, 2017 and 2016. Certain investments that were valued at NAV as of December 31, 2016 were transferred to Level 2 from the NAV category in the six months ended June 30, 2017, as these investments were valued based on a probable transaction value as of the reporting date that differs from NAV. Such investments were sold in the second quarter of 2017.

The following tables present, at September 30, 2017 and December 31, 2016, certain investments that are valued using NAV or its equivalent as a practical expedient in determining fair value:

September 30, 2017

Estimated Liquidation Period of

Investments Not Redeemable

Investments Redeemable

Fair Value

Unfunded

Commitments

% of

Fair Value

Not

Redeemable

5 Years

5-10

Years

Thereafter

Redemption

Frequency

Redemption

Notice Period

Alternative investment funds:

Hedge funds

6,617

(a)

<30-60 days

Funds of funds

517

(b)

<30-90 days

Other

586

(c)

<30-60 days

Debt funds

(d)

30 days

Equity funds

(e)

<30-90 days

Private equity funds:

Equity growth

78,376

10,085

(f)

100

Total

86,151

10,085

(a)	weekly (51%), monthly (2%) and quarterly (47%)

(b)	monthly (97%) and quarterly (3%)

(c)	daily (6%) and monthly (94%)

(d)	daily (100%)

(e)	daily (18%), monthly (50%) and quarterly (32%)

(f)	Unfunded commitments to private equity investments consolidated but not owned by Lazard of $5,915 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders.

December 31, 2016

Estimated Liquidation Period of

Investments Not Redeemable

Investments Redeemable

Fair Value

Unfunded

Commitments

% of

Fair Value

Not

Redeemable

5 Years

5-10

Years

Thereafter

Redemption

Frequency

Redemption

Notice Period

Alternative investment funds:

Hedge funds

6,190

(a)

<30-60 days

Funds of funds

492

(b)

<30-90 days

Other

443

(c)

<30-60 days

Debt funds

(d)

30 days

Equity funds

(e)

<30-90 days

Private equity funds:

Equity growth

90,824

9,183

(f)

100

Mezzanine debt

31,597

100

Total

129,591

9,183

(a)	weekly (73%), monthly (2%) and quarterly (25%)

(b)	monthly (98%) and quarterly (2%)

(c)	daily (7%) and monthly (93%)

(d)	daily (100%)

(e)	daily (19%), monthly (50%) and quarterly (31%)

(f)	Unfunded commitments to private equity investments consolidated but not owned by Lazard of $6,886 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders.

Investment Capital Funding Commitments—At September 30, 2017, the Company’s maximum unfunded commitments for capital contributions to investment funds primarily arose from commitments to EGCP III, which amounted to $8,613. The investment period for EGCP III ended on October 12, 2016, after which point the Company’s obligation to fund capital contributions for new investments in EGCP III expired. The Company remains obligated until October 12, 2023 (or any earlier liquidation of EGCP III) to make capital contributions necessary to fund follow-on investments and to pay for fund expenses.