Segment Reporting

The Company conducts its operations through two segments: the alternative investment segment and the broker‑dealer segment. These activities are conducted primarily in the United States and substantially all of its revenues are generated domestically. The performance measure for these segments is Economic Income (Loss), which management uses to evaluate the financial performance of and make operating decisions for the segments including determining appropriate compensation levels.

In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for consolidated funds and (ii) excludes certain other acquisition-related and/or reorganization expenses (See Note 2). In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income (Loss) revenues also include management fees, incentive income and investment income earned through the Company's investment as a general partner in certain real estate entities and the Company's investment in the activist business. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.

As further stated below, one major difference between Economic Income (Loss) and US GAAP net income (loss) is that Economic Income (Loss) presents the segments' results of operations without the impact resulting from the full consolidation of any of the Consolidated Funds. Consolidation of these funds results in including in income the pro rata share of the income or loss attributable to other owners of such entities which is reflected in net income (loss) attributable to redeemable non-controlling interest in consolidated subsidiaries in the accompanying condensed consolidated statements of operations. This pro rata share has no effect on the overall financial performance for the alternative investment segment, as ultimately, this income or loss is not income or loss for the alternative investment segment itself. Included in Economic Income (Loss) is the actual pro rata share of the income or loss attributable to the Company as an investor in such entities, which is relevant in management making operating decisions and evaluating financial performance.

The following tables set forth operating results for the Company's alternative investment and broker dealer segments and related adjustments necessary to reconcile the Company's Economic Income (Loss) measure to arrive at the Company's consolidated US GAAP net income (loss):



	Three Months Ended September 30, 2014
									Adjustments
	Alternative Investment			Broker-Dealer (1)		Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	45,799	$	45,799		$	—		$	—			$	45,799
Brokerage	15			35,568		35,583			—			(1,249		)	(e)	34,334
Management fees	16,319			—		16,319			(246		)	(6,277		)	(a)	9,796
Incentive income	4,746			—		4,746			(34		)	(5,549		)	(a)	(837		)
Investment Income	4,064			3,399		7,463			—			(7,463		)	(c)	—
Interest and dividends	—			—		—			—			13,725			(c)(e)	13,725
Reimbursement from affiliates	—			—		—			119			2,354			(f)	2,473
Other revenue	43			353		396			—			724			(c)	1,120
Consolidated Funds revenues	—			—		—			691			—				691
Total revenues	25,187			85,119		110,306			530			(3,735		)		107,101
Expenses
Employee compensation and benefits	11,307			53,661		64,968			—			838				65,806
Non-compensation expenses—Fixed	8,887			14,880		23,767			—			(23,767		)	(c)(d)	—
Non-compensation expenses—Variable	3,648			8,509		12,157			—			(12,157		)	(c)(d)	—
Non-compensation expenses	—			—		—			—			33,830			(c)(d)	33,830
Interest and dividends	1,852			812		2,664			—			9,765			(c)(e)	12,429
Reimbursement from affiliates	(1,830		)	—		(1,830		)	—			1,830			(f)	—
Consolidated Funds expenses	—			—		—			635			—				635
Total expenses	23,864			77,862		101,726			635			10,339				112,700
Other income (loss)
Net gain (loss) on securities, derivatives and other investments	—			—		—			—			13,836			(c)	13,836
Consolidated Funds net gains (losses)	—			—		—			888			1,545				2,433
Total other income (loss)	—			—		—			888			15,381				16,269
Income (loss) before income taxes and non-controlling interests	1,323			7,257		8,580			783			1,307				10,670
Income taxes expense / (benefit)	—			—		—			—			141			(b)	141
Economic Income (Loss) / Net income (loss) before non-controlling interests	1,323			7,257		8,580			783			1,166				10,529
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries and funds	(1,877		)	—		(1,877		)	(783		)	(1,346		)		(4,006		)
Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders	$	(554	)	$	7,257	$	6,703		$	—		$	(180	)		$	6,523

(1) For the three months ended September 30, 2014, the Company has reflected $1.9 million of investment income and related compensation expense of $0.7 million within the broker-dealer segment in proportion to that segment's capital.



	Three Months Ended September 30, 2013
										Adjustments
	Alternative Investment			Broker-Dealer (1)			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	27,694		$	27,694		$	—		$	—			$	27,694
Brokerage	—			32,035			32,035			—			(3,573		)	(e)	28,462
Management fees	14,299			—			14,299			(275		)	(4,697		)	(a)	9,327
Incentive income	5,666			—			5,666			—			(3,145		)	(a)	2,521
Investment Income	10,031			2,296			12,327			—			(12,327		)	(c)	—
Interest and dividends	—			—			—			—			10,969			(c)(e)	10,969
Reimbursement from affiliates	—			—			—			(75		)	2,250			(f)	2,175
Other revenue	156			(38		)	118			—			438			(c)	556
Consolidated Funds revenues	—			—			—			445			—				445
Total revenues	30,152			61,987			92,139			95			(10,085		)		82,149
Expenses
Employee compensation and benefits	12,551			40,291			52,842			—			772				53,614
Non-compensation expenses—Fixed	8,938			14,836			23,774			—			(23,774		)	(c)(d)	—
Non-compensation expenses—Variable	1,597			6,833			8,430			—			(8,430		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			31,392			(c)(d)	31,392
Interest and dividends	52			23			75			—			6,206			(c)(e)	6,281
Reimbursement from affiliates	(1,461		)	—			(1,461		)	—			1,461			(f)	—
Consolidated Funds expenses	—			—			—			450			—				450
Total expenses	21,677			61,983			83,660			450			7,627				91,737
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	—			—			—			—			14,680			(c)	14,680
Consolidated Funds net gains (losses)	—			—			—			1,230			2,002				3,232
Total other income (loss)	—			—			—			1,230			16,682				17,912
Income (loss) before income taxes and non-controlling interests	8,475			4			8,479			875			(1,030		)		8,324
Income taxes expense / (benefit)	—			—			—			—			(46		)	(b)	(46		)
Economic Income (Loss) / Net income (loss) before non-controlling interests	8,475			4			8,479			875			(984		)		8,370
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries and funds	(4,813		)	—			(4,813		)	(875		)	929				(4,759		)
Economic Income (Loss) / Net income (loss) attributable to Cowen Group, Inc. stockholders	$	3,662		$	4		$	3,666		$	—		$	(55	)		$	3,611

(1) For the three months ended September 30, 2013, the Company has reflected $3.0 million of investment income and related compensation expense of $1.0 million within the broker-dealer segment in proportion to that segment's capital.



	Nine Months Ended September 30, 2014
									Adjustments
	Alternative Investment			Broker-Dealer (1)		Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	125,653	$	125,653		$	—		$	—			$	125,653
Brokerage	40			104,943		104,983			—			(4,508		)	(e)	100,475
Management fees	46,574			—		46,574			(723		)	(17,439		)	(a)	28,412
Incentive income	17,665			—		17,665			(188		)	(13,092		)	(a)	4,385
Investment Income	29,025			8,207		37,232			—			(37,232		)	(c)	—
Interest and dividends	—			—		—			—			35,437			(c)(e)	35,437
Reimbursement from affiliates	—			—		—			(45		)	7,436			(f)	7,391
Other revenue	140			354		494			—			1,933			(c)	2,427
Consolidated Funds revenues	—			—		—			2,500			—				2,500
Total revenues	93,444			239,157		332,601			1,544			(27,465		)		306,680
Expenses
Employee compensation and benefits	43,360			152,197		195,557			—			2,214				197,771
Non-compensation expenses—Fixed	27,944			41,652		69,596			—			(69,596		)	(c)(d)	—
Non-compensation expenses—Variable	6,195			27,064		33,259			—			(33,259		)	(c)(d)	—
Non-compensation expenses	—			—		—			—			97,832			(c)(d)	97,832
Interest and dividends	5,083			878		5,961			—			23,733			(c)(e)	29,694
Reimbursement from affiliates	(5,313		)	—		(5,313		)	—			5,313			(f)	—
Consolidated Funds expenses	—			—		—			1,335			—				1,335
Total expenses	77,269			221,791		299,060			1,335			26,237				326,632
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	—			—		—			—			48,227			(c)	48,227
Consolidated Funds net gains (losses)	—			—		—			3,509			6,636				10,145
Total other income (loss)	—			—		—			3,509			54,863				58,372
Income (loss) before income taxes and non-controlling interests	16,175			17,366		33,541			3,718			1,161				38,420
Income taxes expense / (benefit)	—			—		—			—			266			(b)	266
Economic Income (Loss) / Net income (loss) before non-controlling interests	16,175			17,366		33,541			3,718			895				38,154
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries and funds	(8,320		)	—		(8,320		)	(3,718		)	(1,371		)		(13,409		)
Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders	$	7,855		$	17,366	$	25,221		$	—		$	(476	)		$	24,745

(1) For the nine months ended September 30, 2014, the Company has reflected $7.5 million of investment income and related compensation expense of $2.5 million within the broker-dealer segment in proportion to that segment's capital.



	Nine Months Ended September 30, 2013
										Adjustments
	Alternative Investment			Broker-Dealer (1)			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	70,431		$	70,431		$	—		$	—			$	70,431
Brokerage	—			93,352			93,352			—			(6,769		)	(e)	86,583
Management fees	43,050			—			43,050			(871		)	(13,661		)	(a)	28,518
Incentive income	14,558			—			14,558			—			(7,472		)	(a)	7,086
Investment Income	22,169			4,593			26,762			—			(26,762		)	(c)	—
Interest and dividends	—			—			—			—			30,905			(c)(e)	30,905
Reimbursement from affiliates	—			—			—			(206		)	6,657			(f)	6,451
Other revenue	381			(427		)	(46		)	—			1,565			(c)	1,519
Consolidated Funds revenues	—			—			—			681			—				681
Total revenues	80,158			167,949			248,107			(396		)	(15,537		)		232,174
Expenses
Employee compensation and benefits	35,500			108,202			143,702			—			1,642				145,344
Non-compensation expenses—Fixed	26,293			41,679			67,972			—			(67,972		)	(c)(d)	—
Non-compensation expenses—Variable	3,996			23,710			27,706			—			(27,706		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			93,994			(c)(d)	93,994
Interest and dividends	183			88			271			—			20,615			(c)(e)	20,886
Reimbursement from affiliates	(4,291		)	—			(4,291		)	—			4,291			(f)	—
Consolidated Funds expenses	—			—			—			1,237			—				1,237
Total expenses	61,681			173,679			235,360			1,237			24,864				261,461
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	—			—			—			—			30,507			(c)	30,507
Consolidated Funds net gains (losses)	—			—			—			4,862			6,843				11,705
Total other income (loss)	—			—			—			4,862			37,350				42,212
Income (loss) before income taxes and non-controlling interests	18,477			(5,730		)	12,747			3,229			(3,051		)		12,925
Income taxes expense / (benefit)	—			—			—			—			288			(b)	288
Economic Income (Loss) / Net income (loss) before non-controlling interests	18,477			(5,730		)	12,747			3,229			(3,339		)		12,637
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries and funds	(8,880		)	—			(8,880		)	(3,229		)	1,600				(10,509		)
Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders	$	9,597		$	(5,730	)	$	3,867		$	—		$	(1,739	)		$	2,128

(1) For the nine months ended September 30, 2013, the Company has reflected $5.6 million of investment income and related compensation expense of $1.8 million within the broker-dealer segment in proportion to that segment's capital.

The following is a summary of the adjustments made to US GAAP net income (loss) for the segment to arrive at

Economic Income (Loss):

Funds Consolidation: The impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income (Loss). Adjustments to reconcile to US GAAP net income (loss) include elimination of incentive income and management fees earned from the Consolidated Funds and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).

Other Adjustments:

(a) Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share

of management and incentive fees of certain real estate operating entities and the activist business.

(b) Economic Income (Loss) excludes income taxes as management does not consider this item when evaluating the

performance of the segment.

(d) Economic Income (Loss) recognizes the Company's proportionate share of expenses for certain real estate and other

operating entities for which the investments are recorded under the equity method of accounting for investments.

(e) Economic Income (Loss) recognizes stock borrow/loan activity and other brokerage dividends as brokerage revenue

(f) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of

revenues under US GAAP.

For the three and nine months ended September 30, 2014 and 2013, there was no one fund or other customer which represented more than 10% of the Company's total revenues.