Fair Value Disclosures

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures

5. Fair Value Disclosures

Fair Value Hierarchy

Total assets measured at fair value on a recurring basis of $152.6 billion at September 30, 2012 were as follows:

	Assets measured at fair value
(Dollar amounts in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Other Assets Not Held  at Fair Value(1)		September 30, 2012
Assets:
Investments
Available-for-sale:
Equity securities (funds and CDOs)	$	189	$	—	$	1	$	—	$	190
Debt securities		—		2		—		—		2
Total available-for-sale		189		2		1		—		192
Held-to-maturity:
Debt securities		—		—		—		103		103
Trading:
Deferred compensation plan mutual funds		53		—		—		—		53
Equity/Multi-asset class mutual funds		62		3		—		—		65
Debt securities		—		6		—		—		6
Total trading		115		9		—		—		124
Other investments:
Consolidated sponsored investment funds:
Real estate		5		—		—		—		5
Hedge funds / Funds of funds		10		48		55		—		113
Private / public equity(2)		13		7		298		—		318
Total consolidated sponsored investment funds		28		55		353		—		436
Equity method:
Hedge funds / Funds of hedge funds		—		60		180		30		270
Private equity investments		—		—		90		—		90
Real estate funds		—		—		103		15		118
Equity/Multi-asset class, alternative mutual funds		31		—		—		—		31
Total equity method		31		60		373		45		509
Deferred compensation plan hedge fund equity method investments		—		10		—		—		10
Cost method investments		—		—		—		365		365
Carried interest		—		—		—		125		125
Total investments		363		136		727		638		1,864
Separate account assets:
Equity securities		89,217		—		33		—		89,250
Debt securities		—		34,463		3		—		34,466
Derivatives		—		29		—		—		29
Money market funds		2,223		—		—		—		2,223
Other		—		1,102		—		943		2,045
Total separate account assets		91,440		35,594		36		943		128,013
Collateral held under securities lending agreements:
Equity securities		18,367		—		—		—		18,367
Debt securities		—		4,195		—		—		4,195
Total collateral held under securities lending agreements		18,367		4,195		—		—		22,562
Other assets(3)		—		11		—		—		11
Assets of consolidated VIEs:
Bank loans		—		1,406		89		—		1,495
Bonds		—		80		45		—		125
Debt securities		—		30		—		—		30
Private / public equity(4)		2		5		26		—		33
Total assets of consolidated VIE		2		1,521		160		—		1,683
Total	$	110,172	$	41,457	$	923	$	1,581	$	154,133

⁽¹⁾  Amounts comprised of investments held at cost, amortized cost, carried interest and certain equity method investments, which include investment companies and other assets, which in accordance with GAAP are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may not represent fair value.

⁽²⁾  Amount within Level 3 included $240 million and $58 million of underlying third-party private equity funds and direct investments in private equity companies held by private equity funds, respectively.

⁽³⁾  Amount included company-owned and split-dollar life insurance policies.

⁽⁴⁾  Amount within Level 3 included $24 million and $2 million of underlying third-party private equity funds and direct investments in private equity companies held by private equity fund, respectively.

Liabilities measured at fair value on a recurring basis at September 30, 2012 were as follows:

(Dollar amounts in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		September 30, 2012
Liabilities:
Borrowings of consolidated VIEs	$	—	$	—	$	1,843	$	1,843
Collateral liabilities under securities lending agreements		18,367		4,195		—		22,562
Other liabilities(1)		13		4		—		17
Total liabilities measured at fair value	$	18,380	$	4,199	$	1,843	$	24,422

⁽¹⁾  Amounts include credit default swap (Pillars) (see Note 7, Derivatives and Hedging, for more information) and securities sold short within consolidated sponsored investment funds recorded within other liabilities on the condensed consolidated statement of financial condition.

Total assets measured at fair value on a recurring basis of $141.6 billion at December 31, 2011 were as follows:

	Assets measured at fair value
(Dollar amounts in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Other Assets Not Held at Fair Value (1)		December 31, 2011
Assets:
Investments
Available-for-sale:
Equity securities (funds and CDOs)	$	50	$	—	$	1	$	—	$	51
Debt securities		—		1		—		—		1
Total available-for-sale		50		1		1		—		52
Held-to-maturity:
Debt securities		—		—		—		105		105
Trading:
Deferred compensation plan mutual funds		46		—		—		—		46
Equity securities		163		6		—		—		169
Debt securities		—		52		—		—		52
Total trading		209		58		—		—		267
Other investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		—		20		22		—		42
Private / public equity		18		—		313		—		331
Total consolidated sponsored investment funds		18		20		335		—		373
Equity method:
Hedge funds / Funds of hedge funds		—		33		193		14		240
Private equity investments		—		—		85		21		106
Real estate funds		—		—		88		20		108
Equity mutual funds		3		—		—		—		3
Total equity method		3		33		366		55		457
Deferred compensation plan hedge fund equity method investments		—		19		—		—		19
Cost method investments		—		—		—		337		337
Carried interest		—		—		—		21		21
Total investments		280		131		702		518		1,631
Separate account assets:
Equity securities		74,088		—		3		—		74,091
Debt securities		—		38,596		7		—		38,603
Derivatives		8		1,487		—		—		1,495
Money market funds		2,845		—		—		—		2,845
Other		—		920		—		917		1,837
Total separate account assets		76,941		41,003		10		917		118,871
Collateral held under securities lending agreements:
Equity securities		14,092		—		—		—		14,092
Debt securities		—		6,826		—		—		6,826
Total collateral held under securities lending agreements		14,092		6,826		—		—		20,918
Other assets(2)		—		11		—		—		11
Assets of consolidated VIEs:
Bank loans		—		1,376		83		—		1,459
Bonds		—		105		40		—		145
Private / public equity		4		4		27		—		35
Total assets of consolidated VIEs		4		1,485		150		—		1,639
Total	$	91,317	$	49,456	$	862	$	1,435	$	143,070

⁽¹⁾  Amounts comprised of investments held at cost, amortized cost, carried interest and certain equity method investments, which include investment companies and other assets, which in accordance with GAAP are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may not represent fair value.

⁽²⁾ Amount includes company-owned and split-dollar life insurance policies.

Liabilities measured at fair value on a recurring basis at December 31, 2011 were as follows:

(Dollar amounts in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		December 31, 2011
Liabilities:
Borrowings of consolidated VIEs	$	—	$	—	$	1,574	$	1,574
Collateral liabilities under securities lending agreements		14,092		6,826		—		20,918
Other liabilities(1)		15		11		—		26
Total liabilities measured at fair value	$	14,107	$	6,837	$	1,574	$	22,518

⁽¹⁾  Amounts include credit default swap (Pillars) (see Note 7, Derivatives and Hedging, for more information) and securities sold short within consolidated sponsored investment funds recorded within other liabilities on the condensed consolidated statement of financial condition.

Level 3 Assets. Level 3 assets recorded within investments of $727 million at September 30, 2012 primarily related to equity method investments and consolidated sponsored investment funds. Level 3 assets within investments, except for direct investments in private equity companies held by private equity funds described below, were primarily valued based upon NAVs received from internal as well as third-party fund managers.

Direct investments in private equity companies held by private equity funds totaled $60 million at September 30, 2012. Direct investments in private equity companies may be valued using the market approach or the income approach, or a combination thereof, and were valued based on an assessment of each underlying investment, incorporating evaluation of additional significant third-party financing, changes in valuations of comparable peer companies, the business environment of the companies, market indices, assumptions relating to appropriate risk adjustments for nonperformance and legal restrictions on disposition, among other factors. The fair value derived from the methods used are evaluated and weighted, as appropriate, considering the reasonableness of the range of values indicated. Under the market approach, fair value may be determined by reference to multiples of market-comparable companies or transactions, including earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples. Under the income approach, fair value may be determined by discounting the cash flows to a single present amount using current market expectations about those future amounts. Unobservable inputs used in a discounted cash flow model may include projections of operating performance generally covering a five-year period and a terminal value of the private equity direct investment. For securities utilizing the discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, risk premium or discount for lack of marketability in isolation could result in a significantly lower (higher) fair value measurement. For securities utilizing the market comparable companies valuation technique, a significant increase (decrease) in the EBITDA multiple in isolation could result in a significantly higher (lower) fair value measurement.

Level 3 assets recorded within separate account assets include single-broker non-binding quotes for fixed income securities and equity securities that have unobservable inputs due to certain corporate actions.

Level 3 assets of consolidated VIEs include bank loans and bonds valued based on single-broker non-binding quotes and direct private equity investments and private equity funds valued based upon valuations received from internal as well as third-party fund managers, which may be adjusted by using the returns of certain market indices.

Level 3 Liabilities. Level 3 liabilities recorded as borrowings of consolidated VIEs include CLO borrowings valued based upon single-broker non-binding quotes.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2012

(Dollar amounts in millions)	June 30, 2012		Realized and unrealized gains (losses) in earnings and OCI			Purchases		Sales and maturities			Issuances and other settlements(1)			Transfers into Level 3		Transfers out of Level 3			September 30, 2012		Total net gains (losses) included in earnings(2)
Assets:
Investments
Available-for-sale:
Equity securities (CDOs)	$	1	$	—		$	—	$	—		$	—		$	—	$	—		$	1	$	—
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		46		8			3		(2	)		—			—		—			55		8
Private equity		298		22			—		(14	)		(8	)		—		—			298		20
Equity method:
Hedge funds / Funds of hedge funds		187		14			—		—			(21	)		—		—			180		14
Private equity investments		88		1			1		—			—			—		—			90		2
Real estate funds		101		6			6		(7	)		(3	)		—		—			103		4
Total Level 3 investments		721		51			10		(23	)		(32	)		—		—			727		48
Separate account assets:
Equity securities		7		(4	)		3		(7	)		—			34		—			33
Debt securities		—		—			3		—			—			—		—			3
Total Level 3 separate account assets		7		(4	)		6		(7	)		—			34		—			36		n/a	(3)
Assets of consolidated VIEs:
Bank loans		85		2			7		(24	)		7			36		(24	)		89
Bonds		44		1			—		—			—			—		—			45
Private equity		25		2			2		(3	)		—			—		—			26
Total Level 3 assets of consolidated VIEs		154		5			9		(27	)		7			36		(24	)		160		n/a	(4)
Total Level 3 assets	$	882	$	52		$	25	($	57	)	($	25	)	$	70	($	24	)	$	923
Liabilities:
Borrowings of consolidated VIEs	$	1,439	($	27	)	$	—	$	—		$	377		$	—	$	—		$	1,843		n/a	(4)

n/a – not applicable

⁽¹⁾  Amount includes distributions from equity method investees, repayments of borrowings of consolidated VIEs, and loans and borrowings related to the consolidation of one additional CLO.

⁽²⁾  Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

⁽³⁾  The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the Company’s condensed consolidated statements of income.

⁽⁴⁾  The net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the Company’s condensed consolidated statements of income.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2012

(Dollar amounts in millions)	December 31, 2011		Realized and unrealized gains (losses) in earnings and OCI			Purchases		Sales and maturities			Issuances and other settlements(1)			Transfers into Level 3		Transfers out of Level 3			September 30, 2012		Total net gains (losses) included in earnings(2)
Assets:
Investments
Available-for-sale:
Equity securities (CDOs)	$	1	$	—		$	—	$	—		$	—		$	—	$	—		$	1	$	—
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		22		4			30		(2	)		(2	)		3		—			55		4
Private equity		313		43			2		(46	)		(8	)		—		(6	)		298		38
Equity method:
Hedge funds / Funds of hedge funds		193		33			—		—			(46	)		—		—			180		33
Private equity investments		85		7			4		—			(6	)		—		—			90		8
Real estate funds		88		8			19		(7	)		(5	)		—		—			103		6
Total Level 3 investments		702		95			55		(55	)		(67	)		3		(6	)		727		89
Separate account assets:
Equity securities		3		(5	)		7		(12	)		—			48		(8	)		33
Debt securities		7		—			3		(6	)		—			—		(1	)		3
Total Level 3 separate account assets		10		(5	)		10		(18	)		—			48		(9	)		36		n/a	(3)
Assets of consolidated VIEs:
Bank loans		83		2			25		(31	)		7			89		(86	)		89
Bonds		40		3			2		—			—			—		—			45
Private equity		27		4			2		(7	)		—			—		—			26
Total Level 3 assets of consolidated VIEs		150		9			29		(38	)		7			89		(86	)		160		n/a	(4)
Total Level 3 assets	$	862	$	99		$	94	($	111	)	($	60	)	$	140	($	101	)	$	923
Liabilities:
Borrowings of consolidated VIEs	$	1,574	($	66	)	$	—	$	—		$	203		$	—	$	—		$	1,843		n/a	(4)

n/a – not applicable

⁽¹⁾  Amount includes distributions from equity method investees, repayments of borrowings of consolidated VIEs, and loans and borrowings related to the consolidation of one additional CLO.

⁽²⁾  Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

⁽³⁾  The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the Company’s condensed consolidated statements of income.

⁽⁴⁾  The net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the Company’s condensed consolidated statements of income.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2011

(Dollar amounts in millions)	June 30, 2011		Realized  and unrealized gains (losses) in earnings and OCI			Purchases		Sales and maturities			Issuances  and other settlements(1)			Transfers into Level 3		Transfers out of Level 3			September 30, 2011		Total net gains (losses) included in earnings(2)
Assets:
Investments:
Available-for-sale:
Equity securities (CDOs)	$	2	($	1	)	$	—	$	—		$	—		$	—	$	—		$	1	($	1	)
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		17		(2	)		—		—			(1	)		—		—			14		(1	)
Private equity		312		(7	)		—		(10	)		(1	)		—		—			294		(10	)
Equity method:
Hedge funds / Funds of hedge funds		211		(19	)		—		—			—			—		—			192		(20	)
Private equity investments		77		3			1		—			—			—		—			81		2
Real estate funds		48		3			5		—			(1	)		—		—			55		3
Total Level 3 investments		667		(23	)		6		(10	)		(3	)		—		—			637		(27	)
Separate account assets:
Equity securities		4		(1	)		1		(3	)		—			—		—			1
Debt securities		10		(1	)		—		(1	)		—			—		—			8
Total Level 3 separate account assets		14		(2	)		1		(4	)		—			—		—			9		n/a	(3)
Assets of consolidated VIEs:
Bank loans		41		(2	)		5		—			16			23		(11	)		72
Private equity		29		—			—		—			—			—		—			29
Total Level 3 assets of consolidated VIEs		70		(2	)		5		—			16			23		(11	)		101		n/a	(4)
Total Level 3 assets	$	751	($	27	)	$	12	($	14	)	$	13		$	23	($	11	)	$	747
Liabilities:
Borrowings of consolidated VIEs	$	1,292	$	38		$	—	$	—		$	332		$	—	$	—		$	1,586		n/a	(4)

n/a – not applicable

⁽¹⁾  Amount includes distributions from equity method investees, repayments of borrowings of consolidated VIEs, and loans and borrowings related to the consolidation of one additional CLO.

⁽²⁾  Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

⁽³⁾  The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the Company’s condensed consolidated statements of income.

⁽⁴⁾  The net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the Company’s condensed consolidated statements of income.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2011

(Dollar amounts in millions)	December 31, 2010		Realized and unrealized gains (losses) in earnings and OCI			Purchases		Sales and maturities			Issuances and other settlements(1)			Transfers into Level 3		Transfers out of Level 3			September 30, 2011		Total net gains (losses) included in earnings(2)
Assets:
Investments:
Available-for-sale:
Equity securities (CDOs)	$	2	$	—		$	—	$	—		($	1	)	$	—	$	—		$	1	$	—
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		19		(1	)		—		(2	)		(1	)		—		(1	)		14		—
Private equity		299		23			8		(38	)		—			2		—			294		20
Equity method:
Hedge funds / Funds of hedge funds		226		(7	)		5		(1	)		(31	)		—		—			192		(7	)
Private equity investments		68		10			4		—			(1	)		—		—			81		10
Real estate funds		36		5			17		—			(3	)		—		—			55		5
Total Level 3 investments		650		30			34		(41	)		(37	)		2		(1	)		637		28
Separate account assets:
Equity securities		4		1			8		(41	)		—			38		(9	)		1
Debt securities		170		(3	)		96		(168	)		—			—		(87	)		8
Total Level 3 separate account assets		174		(2	)		104		(209	)		—			38		(96	)		9		n/a	(3)
Assets of consolidated VIEs:
Bank loans		32		(4	)		25		(16	)		16			46		(27	)		72
Private equity		30		3			—		(4	)		—			—		—			29
Total Level 3 assets of consolidated VIEs		62		(1	)		25		(20	)		16			46		(27	)		101		n/a	(4)
Total Level 3 assets	$	886	$	27		$	163	($	270	)	($	21	)	$	86	($	124	)	$	747
Liabilities:
Borrowings of consolidated VIEs	$	1,278	$	10		$	—	$	—		$	318		$	—	$	—		$	1,586		n/a	(4)

n/a – not applicable

⁽¹⁾  Amount includes distributions from equity method investees, repayments of borrowings of consolidated VIEs, and loans and borrowings related to the consolidation of one additional CLO.

⁽²⁾  Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

⁽³⁾  The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the Company’s condensed consolidated statements of income.

⁽⁴⁾ The net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the Company’s condensed consolidated statements of income.

Realized and Unrealized Gains (Losses) for Level 3 Assets and Liabilities. Realized and unrealized gains (losses) recorded for Level 3 assets and liabilities are reported in non-operating income (expense) on the Company’s condensed consolidated statements of income. A portion of net income (loss) for consolidated investments and all of the net income (loss) for consolidated VIEs are allocated to non-controlling interests to reflect net income (loss) not attributable to the Company.

Transfers in and/or out of Levels. Transfers in and/or out of levels are reflected when significant inputs, including market inputs or performance attributes, used for the fair value measurement become observable / unobservable, or when the Company determines it has the ability, or no longer has the ability, to redeem, in the near term, certain investments that the Company values using a NAV (or a capital account), or when the book value of certain equity method investments no longer represents fair value as determined under valuation methodologies.

Separate Account Assets. During the three and nine months ended September 30, 2012, there were $34 million and $48 million, respectively, of transfers of equity securities into Level 3 from Level 1. These transfers into Level 3 were primarily due to market inputs no longer being considered observable.

During the nine months ended September 30, 2012, there were $8 million of transfers out of Level 3 to Level 1 related to equity securities held within separate accounts. These transfers out of Level 3 were due to availability of observable market inputs.

During the nine months ended September 30, 2011, there were $9 million of transfers out of Level 3 to Level 1 related to equity securities held within separate accounts. In addition, for the nine months ended September 30, 2011, there were $87 million of debt securities transferred out of Level 3 to Level 2 within separate account assets. These transfers out of Level 3 primarily were due to availability of observable market inputs, including additional inputs from pricing vendors and brokers.

During the nine months ended September 30, 2011, there were $38 million of transfers of equity securities held within separate account assets into Level 3 from Level 1. These transfers into Level 3 were primarily due to market inputs no longer being considered observable.

Assets of Consolidated VIEs. During the three and nine months ended September 30, 2012, there were $24 million and $86 million, respectively, of transfers out of Level 3 to Level 2 related to bank loans. In addition, during the three and nine months ended September 30, 2012, there were $36 million and $89 million, respectively, of transfers into Level 3 from Level 2 related to bank loans. These transfers in and out of Levels 2 and 3 were primarily due to availability/unavailability of observable market inputs, including inputs from pricing vendors and brokers.

During the three and nine months ended September 30, 2011, there were $11 million and $27 million, respectively, of transfers out of Level 3 to Level 2 related to bank loans. In addition, during the three and nine months ended September 30, 2011, there were $23 million and $46 million, respectively, of transfers into Level 3 from Level 2 related to bank loans. These transfers in and out of Levels 2 and 3 were primarily due to availability/unavailability of observable market inputs, including inputs from pricing vendors and brokers.

Significant Other Settlements. During the three and nine months ended September 30, 2012, there were $24 million and $57 million, respectively, of distributions from equity method investees categorized in Level 3.

During the nine months ended September 30, 2011, there were $35 million of distributions from equity method investees categorized in Level 3.

During the three and nine months ended September 30, 2012, other settlements included $406 million of borrowings related to the consolidation of one additional CLO.

During the three and nine months ended September 30, 2011, other settlements included $390 million of borrowings related to the consolidation of one additional CLO.

Disclosures of Fair Value for Additional Financial Instruments. At September 30, 2012 and December 31, 2011, the fair value of the Company’s financial instruments not held at fair value are categorized in the table below:

	September 30, 2012				December 31, 2011				Fair Value Hierarchy
(Dollars in millions)	Carrying Amount		Estimated Fair  Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and cash equivalents	$	4,223	$	4,223	$	3,506	$	3,506		Level 1	(1	)
Accounts receivable		2,464		2,464		1,960		1,960		Level 1	(2	)
Due from related parties		121		121		142		142		Level 1	(2	)
Cash and cash equivalents of consolidated VIEs		292		292		54		54		Level 1	(1	)
Financial Liabilities:
Accounts payable and accrued liabilities		1,427		1,427		923		923		Level 1	(2	)
Due to related parties		15		15		22		22		Level 1	(2	)
Short-term borrowings		100		100		100		100		Level 1	(2	)
Long-term borrowings		6,186		6,767		4,690		5,057		Level 2	(3	)

(1) Cash and cash equivalents are carried at either cost or amortized cost that approximates fair value due to their short-term maturities. At September 30, 2012 and December 31, 2011, approximately $46 million and $196 million, respectively, related to cash and cash equivalents held by consolidated sponsored investment funds. Money market funds are valued through the use of quoted market prices, or $1.00, which generally is the NAV of the fund. At September 30, 2012 and December 31, 2011, approximately $17 million and $123 million, respectively, of money market funds were recorded within cash and cash equivalents on the Company’s condensed consolidated statements of financial condition.

(2) The carrying amounts of accounts receivable, due from related parties, accounts payable and accrued liabilities, due to related parties and short-term borrowings approximate fair value due to their short-term nature.

(3) Long-term borrowings are recorded at amortized cost. The fair value of the Company’s long-term borrowings, including the current portion of long-term borrowings, is estimated using market prices at the end of September 2012 and December 2011, respectively. See Note 10, Borrowings, for the fair value of each of the Company’s long-term borrowings.

The fair value of marketable investments is based on quoted market prices or broker quotes. If investments are not readily marketable, fair values primarily are determined based on NAVs (or capital accounts) of investments in limited partnerships/limited liability companies or by the Company based on management’s assumptions or estimates, taking into consideration financial information of the investment, market indices or valuation services from third-party service providers. At September 30, 2012 and December 31, 2011, with the exception of certain equity and cost method investments and carried interest investments that are not accounted for under a fair value measure, the carrying value of investments approximated fair value.

Investments in Certain Entities that Calculate Net Asset Value Per Share. As a practical expedient to value certain investments that do not have a readily determinable fair value and have attributes of an investment company, the Company relies on NAV as the fair value for certain investments. The following tables list information regarding all investments that use a fair value measurement to account for both their financial assets and financial liabilities in their calculation of a NAV per share (or its equivalent).

September 30, 2012

(Dollar amounts in millions)	Ref			Fair Value		Total Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Trading:
Equity		(a	)	$	3	$	—	Daily (100%)	none
Consolidated sponsored investment funds:
Private equity funds of funds		(b	)		240		34	n/r	n/r
Other funds of hedge funds		(c	)		86		—	Monthly (35%), Quarterly (23%) Annual (1%) n/r (41%)	30 – 90 days
Equity method:(1)
Hedge funds/funds of hedge funds		(d	)		239		—	Monthly (2%), Quarterly (25%) n/r (73%)	15 – 90 days
Private equity funds		(e	)		90		42	n/r	n/r
Real estate funds		(f	)		102		15	Quarterly (18%), n/r (82%)	60 days
Deferred compensation plan hedge fund investments		(g	)		10		—	Monthly (30%), Quarterly (70%)	60 – 90 days
Consolidated VIE:
Private equity funds		(h	)		24		2	n/r	n/r
Total				$	794	$	93

n/r – not redeemable

⁽¹⁾  Comprised of equity method investments, which include investment companies, which in accordance with GAAP account for both their financial assets and financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value.

December 31, 2011

(Dollar amounts in millions)	Ref			Fair Value		Total Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Trading:
Equity		(a	)	$	2	$	—	Daily (100%)	none
Consolidated sponsored investment funds:
Private equity funds of funds		(b	)		258		44	n/r	n/r
Other funds of hedge funds		(c	)		24		—	Monthly (25%) Quarterly (54%) n/r (21%)	30 – 90 days
Equity method:(1)
Hedge funds/funds of hedge funds		(d	)		226		4	Monthly (2%) Quarterly (15%) n/r (83%)	15 – 90 days
Private equity funds		(e	)		85		48	n/r	n/r
Real estate funds		(f	)		88		17	n/r	n/r
Deferred compensation plan hedge fund investments		(g	)		19		—	Monthly (16%) Quarterly (84%)	60 – 90 days
Consolidated VIE:
Private equity funds		(h	)		27		2	n/r	n/r
Total				$	729	$	115

n/r – not redeemable

⁽¹⁾  Comprised of equity method investments, which include investment companies, which in accordance with GAAP account for both their financial assets and financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value.

(a) This category includes consolidated offshore feeder funds that invest in master funds with multiple equity strategies to diversify risks. The fair values of the investments in this category have been estimated using the NAV of master offshore funds held by the feeder funds. Investments in this category generally can be redeemed at any time, as long as there are no restrictions in place by the underlying master funds.

(b) This category includes the underlying third-party private equity funds within consolidated BlackRock sponsored private equity funds of funds. The fair values of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds, the Company may sell or transfer its interest, which may need approval by the general partner of the underlying funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately seven and eight years at September 30, 2012 and December 31, 2011, respectively. The total remaining unfunded commitments to other third-party funds were $34 million and $44 million at September 30, 2012 and December 31, 2011, respectively. The Company was contractually obligated to fund $30 million and $33 million at September 30, 2012 and December 31, 2011 to the consolidated funds, while the remaining unfunded balances in the tables above are required to be funded by capital contributions from non-controlling interest holders.

(c) This category includes consolidated funds of hedge funds that invest in multiple strategies to diversify risks. The fair values of the investments in this category have been estimated using the NAV of the fund’s ownership interest in partners’ capital of each fund in the portfolio. The majority of the underlying funds in this category can be redeemed as long as there are no restrictions in place. At September 30, 2012, the underlying funds that are currently restricted from redemptions within one year will be redeemable in approximately 12 to 24 months.

(d) This category includes hedge funds and funds of hedge funds that invest primarily in equities, fixed income securities, distressed credit and mortgage instruments and other third-party hedge funds. The fair values of the investments in this category have been estimated using the NAV of the Company’s ownership interest in partners’ capital. It was estimated that the investments in the funds that are not subject to redemption will be liquidated over a weighted-average period of approximately five and six years at September 30, 2012 and December 31, 2011, respectively.

(e) This category includes several private equity funds that initially invest in non-marketable securities of private companies, which ultimately may become public in the future. The fair values of these investments have been estimated using capital accounts representing the Company’s ownership interest in the funds as well as other performance inputs. The Company’s investment in each fund is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying assets of the private equity funds. It was estimated that the investments in these funds will be liquidated over a weighted-average period of approximately five and six years at September 30, 2012 and December 31, 2011, respectively.

(f) This category includes several real estate funds that invest directly in real estate and real estate related assets. The fair values of the investments in this category have been estimated using capital accounts representing the Company’s ownership interest in the funds. The majority of the Company’s investments in this category is not subject to redemption or is not currently redeemable and is normally returned through distributions as a result of the liquidation of the underlying assets of the real estate funds. It was estimated that the investments in these funds not subject to redemptions will be liquidated over a weighted-average period of approximately seven years at both September 30, 2012 and December 31, 2011.

(g) This category includes investments in certain hedge funds that invest in energy and health science related equity securities. The fair values of the investments in this category have been estimated using capital accounts representing the Company’s ownership interest in partners’ capital as well as performance inputs. The investments in these funds will be liquidated upon settlement of certain deferred compensation liabilities.

(h) This category includes the underlying third-party private equity funds within three consolidated BlackRock sponsored private equity funds of funds. The fair values of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds the Company may sell or transfer its interest, which may need approval by the general partner of the underlying third-party funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately three and four years at September 30, 2012 and December 31, 2011, respectively. Total remaining unfunded commitments to other third-party funds was $2 million at both September 30, 2012 and December 31, 2011, which are required to be funded by capital contributions from non-controlling interest holders.

Fair Value Option. Upon the initial consolidation of five CLOs, the Company elected to adopt the fair value option provisions for eligible assets and liabilities, including bank loans and borrowings of the CLOs to mitigate accounting mismatches between the carrying value of the assets and liabilities and to achieve operational simplification. To the extent there is a difference between the change in fair value of the assets and liabilities, the difference will be reflected as net income (loss) attributable to nonredeemable non-controlling interests on the condensed consolidated statements of income and offset by a change in appropriated retained earnings on the condensed consolidated statements of financial condition.

The following table presents the fair value of those assets and liabilities for which the fair value option was elected as of September 30, 2012 and December 31, 2011:

(Dollar amounts in millions)	September 30, 2012		December 31, 2011
CLO Bank Loans:
Aggregate principal amounts outstanding	$	1,508	$	1,522
Fair value		1,495		1,459
Aggregate unpaid principal balance in excess of fair value	$	13	$	63
Unpaid principal balance of loans more than 90 days past due	$	4	$	4
Aggregate fair value of loans more than 90 days past due		—		—
Aggregate unpaid principal balance in excess of fair value for loans more than 90 days past due	$	4	$	4
CLO Borrowings:
Aggregate principal amounts outstanding	$	1,994	$	1,781
Fair value	$	1,843	$	1,574

At September 30, 2012, the principal amounts outstanding of the borrowings issued by the CLOs mature between 2016 and 2023.

During the three months ended September 30, 2012 and 2011, the change in fair value of the bank loans and bonds held by the CLOs resulted in a $45 million gain and a $36 million loss, respectively, which were offset by a $44 million loss and a $24 million gain, respectively, from the change in fair value of the CLO borrowings.

During the nine months ended September 30, 2012 and 2011, the change in fair value of the bank loans and bonds held by the CLOs resulted in a $123 million gain and a $2 million gain, respectively, which were offset by a $118 million loss and a $33 million loss, respectively, from the change in fair value of the CLO borrowings.

The net gains (losses) were recorded in net gain (loss) on consolidated VIEs on the condensed consolidated statements of income.

The change in fair value of the assets and liabilities included interest income and expense, respectively.