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Fair Value Measurements
 9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements

6.

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 debt is classified as Level 1 when the fair values are based on unadjusted quoted prices in active markets.

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 investments in private equity funds is classified as Level 3 for certain investments that are valued based on the potential transaction value as of September 30, 2019.

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 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 (benefits) 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 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 12.

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 7.

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, 2019 and December 31, 2018, 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, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

NAV

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt

 

$

99,535

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

99,535

 

Equities

 

 

36,390

 

 

 

-

 

 

 

1,724

 

 

 

-

 

 

 

38,114

 

Funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternative investments

 

 

16,930

 

 

 

-

 

 

 

-

 

 

 

10,194

 

 

 

27,124

 

Debt

 

 

112,251

 

 

 

-

 

 

 

-

 

 

 

7

 

 

 

112,258

 

Equity

 

 

215,782

 

 

 

-

 

 

 

-

 

 

 

39

 

 

 

215,821

 

Private equity

 

 

-

 

 

 

-

 

 

 

2,146

 

 

 

40,355

 

 

 

42,501

 

Derivatives

 

 

-

 

 

 

3,278

 

 

 

-

 

 

 

-

 

 

 

3,278

 

Total

 

$

480,888

 

 

$

3,278

 

 

$

3,870

 

 

$

50,595

 

 

$

538,631

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold, not yet purchased

 

$

1,555

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

1,555

 

Contingent consideration liability

 

 

-

 

 

 

-

 

 

 

1,895

 

 

 

-

 

 

 

1,895

 

Derivatives

 

 

-

 

 

 

228,116

 

 

 

-

 

 

 

-

 

 

 

228,116

 

Total

 

$

1,555

 

 

$

228,116

 

 

$

1,895

 

 

$

-

 

 

$

231,566

 

 

 

 

December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

NAV

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt

 

$

202,874

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

202,874

 

Equities

 

 

30,639

 

 

 

-

 

 

 

1,622

 

 

 

-

 

 

 

32,261

 

Funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternative investments

 

 

16,863

 

 

 

-

 

 

 

-

 

 

 

889

 

 

 

17,752

 

Debt

 

 

90,313

 

 

 

-

 

 

 

-

 

 

 

7

 

 

 

90,320

 

Equity

 

 

175,054

 

 

 

-

 

 

 

-

 

 

 

34

 

 

 

175,088

 

Private equity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

56,343

 

 

 

56,343

 

Derivatives

 

 

-

 

 

 

11,967

 

 

 

-

 

 

 

-

 

 

 

11,967

 

Total

 

$

515,743

 

 

$

11,967

 

 

$

1,622

 

 

$

57,273

 

 

$

586,605

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold, not yet purchased

 

$

3,929

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

3,929

 

Contingent consideration liability

 

 

-

 

 

 

-

 

 

 

10,009

 

 

 

-

 

 

 

10,009

 

Derivatives

 

 

-

 

 

 

188,962

 

 

 

-

 

 

 

-

 

 

 

188,962

 

Total

 

$

3,929

 

 

$

188,962

 

 

$

10,009

 

 

$

-

 

 

$

202,900

 

 

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, 2019 and 2018:

 

 

 

Three Months Ended September 30, 2019

 

 

 

Beginning

Balance

 

 

Net Unrealized/

Realized

Gains/Losses

Included In

Earnings (a)

 

 

Purchases/

Acquisitions/

Transfers

 

 

Sales/

Dispositions/

Settlements

 

 

Foreign

Currency

Translation

Adjustments

 

 

Ending

Balance

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

$

1,606

 

 

$

148

 

 

$

-

 

 

$

-

 

 

$

(30

)

 

$

1,724

 

Private equity funds

 

 

2,131

 

 

 

15

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,146

 

Total Level 3 Assets

 

$

3,737

 

 

$

163

 

 

$

-

 

 

$

-

 

 

$

(30

)

 

$

3,870

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration liability

 

$

4,386

 

 

$

(73

)

 

$

-

 

 

$

(2,418

)

 

$

-

 

 

$

1,895

 

Total Level 3 Liabilities

 

$

4,386

 

 

$

(73

)

 

$

-

 

 

$

(2,418

)

 

$

-

 

 

$

1,895

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

Beginning

Balance

 

 

Net Unrealized/

Realized

Gains/Losses

Included In

Earnings (a)

 

 

Purchases/

Acquisitions/

Transfers (b)

 

 

Sales/

Dispositions/

Settlements

 

 

Foreign

Currency

Translation

Adjustments

 

 

Ending

Balance

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

$

1,622

 

 

$

134

 

 

$

-

 

 

$

-

 

 

$

(32

)

 

$

1,724

 

Private equity funds

 

 

-

 

 

 

15

 

 

 

2,131

 

 

 

-

 

 

 

-

 

 

 

2,146

 

Total Level 3 Assets

 

$

1,622

 

 

$

149

 

 

$

2,131

 

 

$

-

 

 

$

(32

)

 

$

3,870

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration liability

 

$

10,009

 

 

$

7,577

 

 

$

-

 

 

$

(15,691

)

 

$

-

 

 

$

1,895

 

Total Level 3 Liabilities

 

$

10,009

 

 

$

7,577

 

 

$

-

 

 

$

(15,691

)

 

$

-

 

 

$

1,895

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

Beginning

Balance

 

 

Net Unrealized/

Realized

Gains/Losses

Included In

Earnings (a)

 

 

Purchases/

Acquisitions

 

 

Sales/

Dispositions

 

 

Foreign

Currency

Translation

Adjustments

 

 

Ending

Balance

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

$

1,629

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

(1

)

 

$

1,628

 

Total Level 3 Assets

 

$

1,629

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

(1

)

 

$

1,628

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration liability

 

$

19,628

 

 

$

(6,707

)

 

$

-

 

 

$

-

 

 

$

-

 

 

$

12,921

 

Total Level 3 Liabilities

 

$

19,628

 

 

$

(6,707

)

 

$

-

 

 

$

-

 

 

$

-

 

 

$

12,921

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

Beginning

Balance

 

 

Net Unrealized/

Realized

Gains/Losses

Included In

Earnings (a)

 

 

Purchases/

Acquisitions

 

 

Sales/

Dispositions

 

 

Foreign

Currency

Translation

Adjustments

 

 

Ending

Balance

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

$

1,592

 

 

$

61

 

 

$

1

 

 

$

-

 

 

$

(26

)

 

$

1,628

 

Total Level 3 Assets

 

$

1,592

 

 

$

61

 

 

$

1

 

 

$

-

 

 

$

(26

)

 

$

1,628

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration liability

 

$

28,941

 

 

$

(16,020

)

 

$

-

 

 

$

-

 

 

$

-

 

 

$

12,921

 

Total Level 3 Liabilities

 

$

28,941

 

 

$

(16,020

)

 

$

-

 

 

$

-

 

 

$

-

 

 

$

12,921

 

 

(a)

Earnings recorded in “other revenue” for investments in equities for the three month and nine month periods ended September 30, 2019 and the three month and nine month periods ended September 30, 2018 include net unrealized gains (losses) of $163, $149, $0 and $61, respectively. Earnings recorded in “amortization and other acquisition-related (benefits) costs” for the contingent consideration liability for the three month and nine month periods ended September 30, 2019 and the three month and nine month periods ended September 30, 2018 include unrealized (gains) losses of $(73), $7,577, $(6,707) and $(16,020), respectively.

(b)

Certain investments that were valued at NAV as of December 31, 2018 were transferred to Level 3 during the nine month period ended September 30, 2019 as these investments are valued based on a potential transaction value that differs from NAV.

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, 2019 and 2018.

The following tables present, at September 30, 2019 and December 31, 2018, certain investments that are valued using NAV or its equivalent as a practical expedient in determining fair value:

 

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Liquidation Period of

Investments Not Redeemable

 

 

Investments Redeemable

 

 

Fair Value

 

 

Unfunded

Commitments

 

 

 

% of

Fair Value

Not

Redeemable

 

 

%

Next

5 Years

 

 

%

5-10

Years

 

 

%

Thereafter

 

 

Redemption

Frequency

 

Redemption

Notice Period

Alternative investment funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge funds

 

$

9,578

 

 

$

-

 

 

 

NA

 

 

NA

 

 

NA

 

 

NA

 

 

(a)

 

30-60 days

Funds of funds

 

 

24

 

 

 

-

 

 

 

NA

 

 

NA

 

 

NA

 

 

NA

 

 

(b)

 

>90 days

Other

 

 

592

 

 

 

-

 

 

 

NA

 

 

NA

 

 

NA

 

 

NA

 

 

(c)

 

<30-30 days

Debt funds

 

 

7

 

 

 

-

 

 

 

NA

 

 

NA

 

 

NA

 

 

NA

 

 

(d)

 

<30 days

Equity funds

 

 

39

 

 

 

-

 

 

 

NA

 

 

NA

 

 

NA

 

 

NA

 

 

(e)

 

<30-90 days

Private equity funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity growth

 

 

40,355

 

 

 

8,264

 

(f)

 

 

100

%

 

 

20

%

 

 

14

%

 

 

66

%

 

NA

 

NA

Total

 

$

50,595

 

 

$

8,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

monthly (99%) and quarterly (1%)

(b)

quarterly (100%)

(c)

daily (6%) and monthly (94%)

(d)

daily (100%)

(e)

daily (24%), monthly (71%) and annually (5%)

(f)

Unfunded commitments to private equity investments consolidated but not owned by Lazard of $13,400 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders.

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Liquidation Period of

Investments Not Redeemable

 

 

Investments Redeemable

 

 

Fair Value

 

 

Unfunded

Commitments

 

 

 

% of

Fair Value

Not

Redeemable

 

 

%

Next

5 Years

 

 

%

5-10

Years

 

 

%

Thereafter

 

 

Redemption

Frequency

 

Redemption

Notice Period

Alternative investment funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge funds

 

$

299

 

 

$

-

 

 

 

NA

 

 

NA

 

 

NA

 

 

NA

 

 

(a)

 

30-60 days

Funds of funds

 

 

23

 

 

 

-

 

 

 

NA

 

 

NA

 

 

NA

 

 

NA

 

 

(b)

 

>90 days

Other

 

 

567

 

 

 

-

 

 

 

NA

 

 

NA

 

 

NA

 

 

NA

 

 

(c)

 

<30-30 days

Debt funds

 

 

7

 

 

 

-

 

 

 

NA

 

 

NA

 

 

NA

 

 

NA

 

 

(d)

 

<30 days

Equity funds

 

 

34

 

 

 

-

 

 

 

NA

 

 

NA

 

 

NA

 

 

NA

 

 

(e)

 

<30-90 days

Private equity funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity growth

 

 

56,343

 

 

 

8,338

 

(f)

 

 

100

%

 

 

14

%

 

 

34

%

 

 

52

%

 

NA

 

NA

Total

 

$

57,273

 

 

$

8,338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

monthly (100%)   

(b)

quarterly (100%)

(c)

daily (6%) and monthly (94%)

(d)

daily (100%)

(e)

daily (25%), monthly (70%) and annually (5%)

(f)

Unfunded commitments to private equity investments consolidated but not owned by Lazard of $14,437 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders.

Investment Capital Funding Commitments—At September 30, 2019, the Company’s maximum unfunded commitments for capital contributions to investment funds primarily arose from commitments to EGCP III, which amounted to $7,602. 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.