Fair Value Measurements for Operating Entities and Consolidated Funds (Tables)

9 Months Ended

Sep. 30, 2014

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following table presents the assets and liabilities that are measured at fair value on a recurring basis on the accompanying condensed consolidated statements of financial condition by caption and by level within the valuation hierarchy as of September 30, 2014 and December 31, 2013:

Operating Entities



	Assets at Fair Value as of September 30, 2014
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Securities owned and derivatives
US Government securities	$	1,009	$	—	$	—	$	1,009
Preferred stock	—		—		574		574
Common stocks	428,145		2,506		290		430,941
Restricted Common stocks	—		11,993		—		11,993
Convertible bonds	—		5,751		1,750		7,501
Corporate bonds	—		188,832		—		188,832
Warrants and rights	762		—		2,608		3,370
Mutual funds	16,382		—		—		16,382
Receivable on derivative contracts, at fair value
Futures	177		—		—		177
Currency forwards	—		291		—		291
Equity swaps	—		1,541		—		1,541
Options	5,172		—		28,785		33,957
Other investments
Portfolio Funds	—		36,530		60,474		97,004
Real estate investments	—		—		2,285		2,285
Lehman claim	—		—		360		360
	$	451,647	$	247,444	$	97,126	$	796,217



	Liabilities at Fair Value as of September 30, 2014
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Securities sold, not yet purchased and derivatives
Common stocks	$	208,990	$	41	$	—	$	209,031
Corporate bonds	—		58		—		58
Payable for derivative contracts, at fair value
Futures	24		—		—		24
Equity and credit default swaps	—		51		—		51
Options	2,509		—		28,785		31,294
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (a)	$	—	$	—	$	6,419	$	6,419
	$	211,523	$	150	$	35,204	$	246,877

(a) In accordance with the terms of purchase agreements for acquisitions that closed during 2012, the Company is required to pay to the sellers a portion of future net income of the acquired businesses, if certain revenue targets are achieved through the period ended October 2016. The Company estimated the contingent consideration liability using the income approach (discounted cash flow method) which requires the Company to make estimates and assumptions regarding the future cash flows and profits. Changes in these estimates and assumptions could have a significant impact on the amounts recognized. The undiscounted amounts as of September 30, 2014 can range from $1.5 million to $10.9 million.



	Assets at Fair Value as of December 31, 2013
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Securities owned and derivatives
US Government securities	$	9	$	—	$	—	$	9
Preferred stock	—		—		324		324
Common stocks	171,277		2,103		3,559		176,939
Convertible bonds	—		4,008		1,950		5,958
Corporate bonds	—		121,372		—		121,372
Warrants and rights	107		—		5,805		5,912
Mutual funds	525		—		—		525
Receivable on derivative contracts, at fair value
Futures	285		—		—		285
Currency forwards	—		22		—		22
Equity swaps	—		70		—		70
Options	9,698		—		—		9,698
Other investments
Portfolio Funds	—		19,402		51,649		71,051
Real estate investments	—		—		2,088		2,088
Lehman claim	—		—		378		378
	$	181,901	$	146,977	$	65,753	$	394,631



	Liabilities at Fair Value as of December 31, 2013
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Securities sold, not yet purchased and derivatives
Common stocks	$	130,899	$	—	$	—	$	130,899
Corporate bonds	—		55		—		55
Payable for derivative contracts, at fair value
Futures	275		—		—		275
Currency forwards	—		301		—		301
Equity swaps	—		525		—		525
Options	6,573		—		—		6,573
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (a)	—		—		6,937		6,937
	$	137,747	$	881	$	6,937	$	145,565

Consolidated Funds' investments



	Assets at Fair Value as of September 30, 2014
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Other investments
Portfolio Funds	$	—	$	49,653	$	146,987	$	196,640
Lehman claims	—		—		361		361
	$	—	$	49,653	$	147,348	$	197,001



	Assets at Fair Value as of December 31, 2013
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Other investments
Portfolio Funds	—		26,964		155,674		182,638
Lehman claims	—		—		4,842		4,842
	$	—	$	26,964	$	160,516	$	187,480

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The following table includes a rollforward of the amounts for the three and nine months ended September 30, 2014 and 2013, for financial instruments classified within level 3. The classification of a financial instrument within level 3 is based upon the significance of the unobservable inputs to the overall fair value measurement.



	Three Months Ended September 30, 2014
	Balance at June 30, 2014		Transfers in		Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2014		Change in unrealized gains/(losses) relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	2,574	$	—	$	(2,000	)	(b)	$	—	$	—		$	—		$	574	$	—
Common stocks	419		—		—				—		(1		)	(128		)	290		(14		)
Convertible bonds	1,750		—		—				—		—			—			1,750		—
Options, asset	37,658		—		—				—		—			(8,873		)	28,785		(8,873		)
Options, liability	37,658		—		—				—		—			(8,873		)	28,785		(8,873		)
Warrants and rights	3,346		—		—				57		(57		)	(738		)	2,608		(434		)
Portfolio Funds	62,437		—		—				3,049		(5,320		)	308			60,474		373
Real estate	2,262		—		—				—		—			23			2,285		23
Lehman claim	418		—		—				—		—			(58		)	360		(58		)
Contingent consideration liability	6,783		—		—				—		(364		)	—			6,419		—
Consolidated Funds
Portfolio Funds	145,371		—		—				—		(409		)	2,025			146,987		1,962
Lehman claim	4,090		—		—				—		(3,731		)	2			361		2



	Three Months Ended September 30, 2013
	Balance at June 30, 2013		Transfers in		Transfers out		Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2013		Change in unrealized gains/(losses) relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	333	$	—	$	—	$	—	$	—		$	—		$	333	$	—
Common stocks	2,273		—		—		—		(2		)	(162		)	2,109		(161		)
Warrants and rights	2,136		—		—		—		—			531			2,667		(76		)
Portfolio Funds	43,343				—		6,491		(289		)	2,158			51,703		1,446
Real estate	2,158		—		—		—		—			(31		)	2,127		(31		)
Lehman claim	278		—		—		—		—			280			558		280
Contingent consideration liability	7,928		—		—		—		(94		)	—			7,834		—
Consolidated Funds
Portfolio Funds	177,848		—		—		—		(17,886		)	1,124			161,086		635
Lehman claim	15,434		—		—		—		—			1,049			16,483		1,049



	Nine Months Ended September 30, 2014
	Balance at December 31, 2013		Transfers in		Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2014		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	324	$	—	$	(2,000	)	(b)	$	2,250	$	—		$	—		$	574	$	—
Common stocks	3,559		—		(3,150		)	(b)	9		(1		)	(127		)	290		(13		)
Convertible bonds	1,950		—		—				—		(200		)	—			1,750		—
Options, asset	—		—		—				35,710		—			(6,925		)	28,785		(6,925		)
Options, liability	—		—		—				35,710		—			(6,925		)	28,785		(6,925		)
Warrants and Rights	5,805		—		—				57		(1,385		)	(1,869		)	2,608		(432		)
Portfolio Funds	51,649		—		—				12,234		(8,340		)	4,931			60,474		3,585
Real estate	2,088		—		—				50,000		(50,027		)	224			2,285		224
Lehman claim	378		—		—				—		(76		)	58			360		58
Contingent consideration liability	6,937		—		—				—		(518		)	—			6,419		—
Consolidated Funds
Portfolio Funds	155,674		—		—				—		(16,439		)	7,752			146,987		7,689
Lehman claim	4,842		—		—				—		(4,711		)	230			361		230



	Nine Months Ended September 30, 2013
	Balance at December 31, 2012		Transfers in			Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2013		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	2,332	$	—		$	(2,000	)	(b)	$	—	$	—		$	1		$	333	$	1
Common stocks	2,549		—			—				—		(275		)	(165		)	2,109		(424		)
Corporate Bond	515		—			—				2,735		(3,346		)	96			—		—
Warrants and Rights, asset	1,713		290		(a)	—				166		(110		)	608			2,667		760
Warrants and Rights, liability	3		—			—				—		—			(3		)	—		—
Portfolio Funds	25,670		13,128			—				16,560		(7,821		)	4,166			51,703		4,542
Real estate	1,864		—			—				—		—			263			2,127		263
Lehman claim	706		—			—				—		(382		)	234			558		234
Contingent consideration liability	8,116		—			—				—		(282		)	—			7,834		—
Consolidated Funds
Portfolio Funds	182,920		—			—				—		(27,835		)	6,001			161,086		5,092
Lehman claim	14,124		—			—				—		(1,449		)	3,808			16,483		2,448

(1) Unrealized gains/losses are reported in other income (loss) in the accompanying condensed consolidated statements of

operations.

(a) The security was acquired through an acquisition (See Note 2).

(b) The company completed an initial public offering.

Fair Value Inputs, Assets, Quantitative Information

The following table includes quantitative information as of September 30, 2014 for financial instruments classified within level 3. The table below quantifies information about the significant unobservable inputs used in the fair value measurement of the Company's level 3 financial instruments.



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at September 30, 2014		Valuation techniques	Unobservable Inputs	Range

Level 3 Assets
Common and preferred stocks	$	324	Market multiples and option pricing method	Volatility Market multiples	45% 2x to 3x
Warrants and rights, net	2,608		Model based	Volatility	20% to 60% (weighted average 39%)
Options	28,785		Option pricing models, credit valuation adjustment, debt valuation adjustment	Volatility Credit spreads	30% to 45% 600bps - 750 bps
Other level 3 assets (a)	212,757
Total level 3 assets	244,474
Level 3 Liabilities
Options	28,785		Option pricing models, credit valuation adjustment, debt valuation adjustment	Volatility Credit spreads	30% to 45% 600bps - 750 bps
Contingent consideration	6,419		Discounted cash flows	Projected cash flow and discount rate	6% to 9%
Total level 3 liabilities	$	35,204

(a)

Quantitative disclosures of unobservable inputs and assumptions are not required for investments for which NAV per share is used as a practical expedient to determine fair value, as their redemption features rather than observability of inputs cause them to be classified as a level 3 type asset within the fair value hierarchy. In addition, the fair value of the Consolidated Funds' investments are determined based on net asset value and therefore quantitative disclosures are not included in the table above. The quantitative disclosures also exclude financial instruments for which the determination of fair value is based on prices from prior transactions.

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

+ References+ Details