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INVESTMENTS AND FAIR VALUE DISCLOSURES

12 Months Ended

Dec. 31, 2022

9. INVESTMENTS AND FAIR VALUE DISCLOSURES

The following table presents the components of the Company’s investments:


(dollars in thousands)	December 31, 2022		December 31, 2021
Loans, at amortized cost (includes $252,225 and $— of investments in the Company’s products, respectively)	$	254,152	$	2,310
Equity investments in the Company's products, equity method	46,157		8,522
Equity investments in the Company's products, at fair value	14,079		—
Investments in the Company's CLOs, at fair value	2,843		—
Corporate bonds, at fair value	—		1,311
Total	$	317,231	$	12,143

Fair Value Measurements Categorized within the Fair Value Hierarchy

Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date (i.e., an exit price). The Company and the products it manages hold a variety of assets and liabilities, certain of which are not publicly traded or that are otherwise illiquid. Significant judgement and estimation go into the assumptions that drive the fair value of these assets and liabilities. The fair value of these assets and liabilities may be estimated using a combination of observed transaction prices, prices from third parties (including independent pricing services and relevant broker quotes), models or other valuation methodologies based on pricing inputs that are neither directly nor indirectly market observable. Due to the inherent uncertainty of valuations of assets and liabilities that are determined to be illiquid or do not have readily ascertainable fair values, the estimates of fair value may differ from the values ultimately realized, and those differences can be material.

GAAP prioritizes the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of assets and liabilities and the specific characteristics of the financial assets and liabilities. Financial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and lesser degree of judgment used in measuring fair value.

Financial assets and liabilities measured at fair value are classified and disclosed into one of the following categories based on the observability of inputs used in the determination of fair values:

•Level I – Quoted prices that are available in active markets for identical financial assets or liabilities as of the reporting date.

•Level II – Valuations obtained from independent third-party pricing services, the use of models or other valuation methodologies based on pricing inputs that are either directly or indirectly market observable as of the measurement date. These financial assets and liabilities exhibit higher levels of liquid market observability as compared to Level III financial assets and liabilities.

•Level III – Pricing inputs that are unobservable in the market and includes situations where there is little, if any, market activity for the financial asset or liability. The inputs into the determination of fair value of financial assets and liabilities in this category may require significant management judgment or estimation. The fair value of these financial assets and liabilities may be estimated using a combination of observed transaction prices, independent pricing services, models or other valuation methodologies based on pricing inputs that are neither directly nor indirectly market observable (e.g., cash flows, implied yields).

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial asset or liability when the fair value is based on unobservable inputs.

The tables below summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and December 31, 2021:


	December 31, 2022
(dollars in thousands)	Level I		Level II		Level III		Total
Investments, at Fair Value


Equity investments in the Company's products	$	—	$	14,079	$	—	$	14,079
CLOs	—		—		2,843		2,843
Total Assets, at Fair Value	$	—	$	14,079	$	2,843	$	16,922

Liabilities, at Fair Value
TRA liability	$	—	$	—	$	120,587	$	120,587
Warrant liability	—		—		8,550		8,550
Earnout liability	—		—		172,070		172,070
Total Liabilities, at Fair Value	$	—	$	—	$	301,207	$	301,207


	December 31, 2021
(dollars in thousands)	Level I		Level II		Level III		Total
Investments, at Fair Value
Corporate bonds	$	—	$	1,311	$	—	$	1,311



Liabilities, at Fair Value
TRA liability	$	—	$	—	$	111,325	$	111,325
Warrant liability	43,048		—		25,750		68,798
Earnout liability	—		—		143,800		143,800
Total Liabilities, at Fair Value	$	43,048	$	—	$	280,875	$	323,923

Reconciliation of Fair Value Measurements Categorized within Level III

Unrealized gains and losses on the Company’s assets and liabilities carried at fair value on a recurring basis are included within other income (loss) in the consolidated and combined statements of operations. There were no transfers in or out of Level III. The following table sets forth a summary of changes in the fair value of the Level III measurements for the years ended December 31, 2022 and December 31, 2021:


Year Ended December 31, 2022	Level III Assets
(dollars in thousands)	Investment in CLOs
Beginning balance	$	—
Purchases	3,738

Net losses	(895)
Ending Balance	$	2,843
Change in net unrealized losses on assets still recognized at the reporting date	$	(895)


Year Ended December 31, 2022	Level III Liabilities
(dollars in thousands)	TRA Liability		Warrant Liability		Earnout Liability		Total
Beginning balance	$	111,325	$	25,750	$	143,800	$	280,875
Issuances	—		—		13,782		13,782

Net losses (gains)	9,262		(17,200)		14,488		6,550
Ending Balance	$	120,587	$	8,550	$	172,070	$	301,207
Change in net unrealized losses (gains) on liabilities still recognized at the reporting date	$	9,262	$	(17,200)	$	14,488	$	6,550


Year Ended December 31, 2021	Level III Liabilities
(dollars in thousands)	TRA Liability		Warrant Liability		Earnout Liability		Total
Beginning balance	$	—	$	—	$	—	$	—
Issuances	101,645		9,131		635,077		745,853
Settlement of Earnout Securities liability	—		—		(1,325,532)		(1,325,532)
Net losses	9,680		16,619		834,255		860,554
Ending Balance	$	111,325	$	25,750	$	143,800	$	280,875
Change in net unrealized losses on liabilities still recognized at the reporting date	$	9,680	$	16,619	$	—	$	26,299

Valuation Methodologies for Fair Value Measurements Categorized within Levels II and III

Equity Investments in the Company’s Products

The fair value of equity investments in the Company’s products is determined based on the published net asset value of these investments, as such values are the price at which contributions and redemptions are effectuated on a monthly basis. These investments are generally classified as Level II. The majority of this balance is subject to a one-year minimum holding period, which will expire in the fourth quarter of 2023. The remaining balance is generally redeemable on a monthly basis at the Company’s option.

CLOs

The fair value of CLOs are determined based on inputs from independent pricing services. These investments are classified as Level III. The Company obtains prices from independent pricing services that utilizes a discounted cash flows, which take into account unobservable significant inputs, such as yield, prepayments and credit quality.

Corporate Bonds

The fair value of corporate bonds are estimated based on quoted prices in markets that are not active, dealer quotations or alternative pricing sources supported by observable inputs. These investments are generally classified as Level II. The Company obtains prices from independent pricing services that generally utilize broker quotes and may use various other pricing techniques, which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data.

TRA Liability

The TRA related to the Dyal Acquisition is considered contingent consideration and is measured at fair value based on discounted future cash flows. The remaining TRA liability on the Company’s consolidated and combined statements of financial condition is not measured at fair value.

Warrant Liability

The Company uses a Monte Carlo simulation model to value the Private Placement Warrants. The Company estimates the volatility of its Class A Shares based on the volatility implied by our peer group. The risk-free interest rate is based on U.S. Treasuries for a maturity similar to the expected remaining life of the warrants. The expected term of the warrants is assumed to be equivalent to their remaining contractual term. Prior to their redemption, the Public Warrants were traded on the NYSE and were stated at the last reported sales price without any valuation adjustments, and therefore were classified as Level I.

Earnout Liability

During 2022, the earnout liability was comprised of the Oak Street Cash Earnout and the Wellfleet Earnouts, each of which were deemed to be contingent consideration on the respective Acquisitions. During 2021, the earnout liability was comprised of the Earnout Securities, which were settled prior to December 31, 2021, and the Oak Street Cash Earnout.

The fair value of the Oak Street Cash Earnout was determined using a Monte Carlo simulation model. The model incorporates management revenue forecast and makes the following adjustments: historical revenue volatility, risk free rate based on U.S. Treasuries for a maturity similar to the expected remaining life and a discount rate to adjust management’s revenue forecast from a risk-based forecast to a risk-neutral forecast.

The fair value of the Earnout Securities was determined using a Monte Carlo simulation model. The Company estimated the volatility of its Class A Shares based on the volatility implied by a review of historical volatility for similar publicly traded companies over a horizon that matched the expected remaining life of the Earnout Securities at each measurement date and the risk-free interest rate was based on U.S. Treasuries for a maturity similar to the expected remaining life.

The fair value of the Wellfleet Earnouts, which are primarily comprised of future contingent cash payments, was determined using a discounted cash flow model, which incorporates a discount rate based on the Company’s credit rating.

Quantitative Inputs and Assumptions for Fair Value Measurements Categorized within Level III

The following table summarizes the quantitative inputs and assumptions used for the Company’s Level III measurements as of December 31, 2022:


(dollars in thousands)	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range				Weighted Average		Impact to Valuation from an Increase in Input

Assets
CLOs	$	2,843	Discounted cash flow	Yield	16	%	-	19%	17	%	Decrease


Liabilities
TRA liability	$	120,587	Discounted cash flow	Discount Rate	11	%	-	11%	11	%	Decrease
Warrant liability	8,550		Monte Carlo Simulation	Volatility	34	%	-	34%	34	%	Increase
Earnout liability:
Oak Street Earnouts	158,497		Monte Carlo Simulation	Revenue Volatility	50	%	-	50%	50	%	Increase
				Discount Rate	17	%		17%	17	%	Decrease
Wellfleet Earnouts	13,573		Discounted cash flow	Discount Rate	6	%	-	6%	6	%	Decrease
	172,070

Total Liabilities, at Fair Value	$	301,207

The following table summarizes the quantitative inputs and assumptions used for the Company’s Level III measurements as of December 31, 2021:


(dollars in thousands)	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range				Weighted Average		Impact to Valuation from an Increase in Input

TRA liability	$	111,325	Discounted cash flow	Discount rate	10	%	-	10%	10	%	Decrease
Warrant liability	25,750		Monte Carlo simulation	Volatility	26	%	-	26%	26	%	Increase
Earnout liability:
Oak Street Earnouts	143,800		Monte Carlo simulation	Revenue volatility	38	%	-	38%	38	%	Increase
				Discount rate	15	%	-	15%	15	%	Decrease
Total Liabilities, at Fair Value	$	280,875

Fair Value of Other Financial Instruments

As of December 31, 2022, the fair value of the Company’s debt obligations was approximately $1.3 billion compared to a carrying value of $1.6 billion, of which $1.1 billion of the fair value would have been categorized as Level II within the fair value hierarchy and the remainder as Level III. Management estimates that the carrying value of the Company’s other financial instruments, which are not carried at fair value, approximated their fair values as of December 31, 2022, and such fair value measurements are categorized as Level III within the fair value hierarchy. As of December 31, 2021, management estimates that the carrying value of the Company’s other investments and debt obligations, which are not carried at fair value, approximated their fair values, and such fair value measurements for the other investments are categorized as Level III and its debt obligations are categorized as Level I within the fair value hierarchy.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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