Fair Value of Assets and Liabilities Measured at Fair Value on a Recurring Basis

3 Months Ended

Jan. 31, 2020

Fair Value of Assets and Liabilities Measured at Fair Value on a Recurring Basis [Abstract]

Fair Value of Assets and Liabilities Measured at Fair Value on a Recurring Basis

6.  Fair Value of Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables summarize financial assets and liabilities measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy:

January 31, 2020
(in thousands)		Level 1		Level 2		Level 3		Other Assets Not Held at Fair Value		Total
Financial assets:
Cash equivalents	$	17,883	$	105,582	$	-	$	-	$	123,465
Investments held at fair value:
Debt securities:
Short-term		-		280,590		-		-		280,590
Held by consolidated sponsored funds		-		351,976		-		-		351,976
Held in separately managed accounts		-		56,149		-		-		56,149
Equity securities:
Held by consolidated sponsored funds		77,572		134,194		-		-		211,766
Held in separately managed accounts		23,146		217		-		-		23,363
Non-consolidated sponsored funds
and other		9,932		570		-		-		10,502
Investments held at cost(1)		-		-		-		20,904		20,904
Investments in non-consolidated CLO
entities(2)		-		-		-		1,399		1,399
Investments in equity method investees(1)		-		-		-		138,454		138,454
Derivative instruments		-		2,966		-		-		2,966
Assets of consolidated CLO entities:
Bank loans and other investments		-		1,286,525		4,058		-		1,290,583
Total financial assets	$	128,533	$	2,218,769	$	4,058	$	160,757	$	2,512,117
Financial liabilities:
Derivative instruments	$	-	$	4,165	$	-	$	-	$	4,165
Liabilities of consolidated CLO entities:
Senior and subordinated note obligations		-		1,218,216		-		-		1,218,216
Total financial liabilities	$	-	$	1,222,381	$	-	$	-	$	1,222,381

October 31, 2019
(in thousands)			Level 1		Level 2		Level 3	Other Assets Not Held at Fair Value			Total
Financial assets:
Cash equivalents		$	24,640	$	157,267	$	-	$	-	$	181,907
Investments held at fair value:
Debt securities:
Short-term			-		297,845		-		-		297,845
Held by consolidated sponsored funds			-		330,966		-		-		330,966
Held in separately managed accounts			-		55,426		-		-		55,426
Equity securities:
Held by consolidated sponsored funds			70,646		112,460		-		-		183,106
Held in separately managed accounts			21,168		68		-		-		21,236
Non-consolidated sponsored funds
and other			9,814		515		-		-		10,329
Investments held at cost(1)			-		-		-		20,904		20,904
Investments in non-consolidated CLO
entities(2)			-		-		-		1,417		1,417
Investments in equity method investees(1)			-		-		-		139,510		139,510
Derivative instruments			-		2,075		-		-		2,075
Assets of consolidated CLO entities:
Bank loans and other investments			-		1,702,769		1,501		-		1,704,270
Total financial assets		$	126,268	$	2,659,391	$	1,501	$	161,831	$	2,948,991
Financial liabilities:
Derivative instruments		$	-	$	3,314	$	-	$	-	$	3,314
Liabilities of consolidated CLO entities:
Senior and subordinated note obligations			-		1,617,095		-		-		1,617,095
Total financial liabilities		$	-	$	1,620,409	$	-	$	-	$	1,620,409
(1)	These investments are not measured at fair value in accordance with U.S. GAAP.
(2)	Investments in non-consolidated CLO entities are carried at amortized cost unless facts or circumstances indicate that the investments have been impaired, at which time the investments are written down to fair value as measured using level 3 inputs.

A description of the valuation techniques and the inputs used in recurring fair value measurements is included immediately below. There have been no changes in the Company’s valuation techniques in the current reporting period.

Cash equivalents

Cash equivalents include investments in money market mutual funds, government agency securities, certificates of deposit and commercial paper with remaining maturities to the Company of less than three months, as determined upon the purchase of each security. Cash investments in daily redeemable, actively traded money market mutual funds are valued using published net asset values and are categorized as Level 1 within the fair value measurement hierarchy. Holdings of Treasury and government agency securities are valued based upon quoted market prices for similar assets in active markets, quoted prices for identical or similar assets that are not active and inputs other than quoted prices that are observable or corroborated by observable market data. The carrying amounts of certificates of deposit and commercial paper are measured at amortized cost, which approximates fair value due to the short time between the purchase and expected

maturity of these investments. Depending on the categorization of the significant inputs, these assets are generally categorized in their entirety as Level 1 or 2 within the fair value measurement hierarchy.

Debt securities held at fair value

Debt securities held at fair value consist of certificates of deposit, commercial paper and corporate debt obligations with remaining maturities of three months to 12 months upon purchase by the Company, as well as investments in debt securities held in portfolios of consolidated sponsored funds and separately managed accounts.

Short-term debt securities held are generally valued on the basis of valuations provided by third-party pricing services, as derived from such services’ pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and ask prices, broker-dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. These assets are generally categorized as Level 2 within the fair value measurement hierarchy.

Debt securities held in portfolios of consolidated sponsored funds and separately managed accounts are generally valued on the basis of valuations provided by third-party pricing services as described above for short-term debt securities. Debt securities purchased with an original (remaining) maturity of 60 days or less (excluding those that are non-U.S. denominated, which typically are valued by a third-party pricing service or dealer quotes) are generally valued at amortized cost, which approximates fair value. Depending on the categorization of the significant inputs, debt securities held in portfolios of consolidated sponsored funds are generally categorized in their entirety as Level 1 or 2 within the fair value measurement hierarchy.

Equity securities held at fair value

Equity securities measured at fair value on a recurring basis consist of domestic and foreign equity securities held in portfolios of consolidated sponsored funds and separately managed accounts and investments in non-consolidated sponsored or other funds.

Equity securities are valued at the last sale, official close or, if there are no reported sales on the valuation date, at the mean between the latest available bid and ask prices on the primary exchange on which they are traded. When valuing foreign equity securities that meet certain criteria, the portfolios use a fair value service that values such securities to reflect market trading that occurs after the close of the applicable foreign markets of comparable securities or other instruments that have a strong correlation to the fair-valued securities. In addition, the Company performs its own independent back test review of fair values versus the subsequent local market opening prices when available. Depending on the categorization of the significant inputs, these assets are generally categorized in their entirety as Level 1 or 2 within the fair value measurement hierarchy.

Equity investments in non-consolidated mutual funds are valued using the published net asset value per share and are classified as Level 1 within the fair value measurement hierarchy. Sponsored private open-end funds are not listed on an active exchange but calculate a net asset value per share (or equivalent) as of the Company’s reporting date in a manner consistent with mutual funds. The Company’s investments therein do not have any redemption restrictions and are not probable of being sold at an amount different from their calculated net asset value per share (or equivalent). Accordingly, investments in sponsored private open-end funds are measured at fair value based on the net asset value per share (or equivalent) of the investment as a practical expedient and are categorized as Level 2 within the fair value measurement hierarchy. The Company

does not have any unfunded commitments related to investments in sponsored private mutual funds at January 31, 2020 and October 31, 2019.

Derivative instruments

Derivative instruments, further discussed in Note 5, are recorded as either other assets or other liabilities on the Company’s Consolidated Balance Sheets. Futures and swap contracts are valued using a third‐party pricing service that determines fair value based on bid and ask prices. Foreign exchange contracts are valued by interpolating a value using the spot foreign exchange rate and forward points, which are based on spot rates and currency interest rate differentials. Derivative instruments generally are classified as Level 2 within the fair value measurement hierarchy.

Assets of consolidated CLO entities

Consolidated CLO entity assets include investments in bank loans and equity securities. Fair value is determined utilizing unadjusted quoted market prices when available. Equity securities held by consolidated CLO entities are valued using the same techniques as described above for equity securities. Interests in senior floating‐rate loans for which reliable market quotations are readily available are generally valued at the average mid‐point of bid and ask quotations obtained from a third‐party pricing service. Fair value may also be based upon valuations obtained from independent third‐party brokers or dealers utilizing matrix pricing models that consider information regarding securities with similar characteristics. In certain instances, fair value has been determined utilizing discounted cash flow analyses or single broker non‐binding quotes. Depending on the categorization of the significant inputs, these assets are generally categorized as Level 2 or 3 within the fair value measurement hierarchy.

Liabilities of consolidated CLO entities

Consolidated CLO entity liabilities include senior and subordinated note obligations. Fair value is determined using the measurement alternative to ASC 820 for collateralized financing entities. In accordance with the measurement alternative, the fair value of CLO liabilities was measured as the fair value of CLO assets less the sum of (1) the fair value of the beneficial interests held by the Company and (2) the carrying value of any beneficial interests that represent compensation for services. Although both Level 2 and Level 3 inputs were used to measure the fair value of the CLO liabilities, the senior note obligations are classified as Level 2 within the fair value measurement hierarchy, as the Level 3 inputs used were not significant.

Level 3 assets and liabilities

The following table shows a reconciliation of the beginning and ending fair value measurements of assets and liabilities valued on a recurring basis and classified as Level 3 within the fair value measurement hierarchy:

			Three Months Ended
			January 31,2020
(in thousands)			Bank Loans and Other Investments of Consolidated CLO Entities
Beginning balance		$	1,501
Paydowns			(6)
Purchases			321
Net gains (losses) included in net income			37
Transfers into Level 3(1)			2,205
Ending balance		$	4,058
(1)	Transfers into Level 3 were the result of a reduction in the availability of significant observable inputs used in determining the fair value of certain instruments.

Financial Assets and Liabilities Not Measured at Fair Value

Certain financial instruments are not carried at fair value, but their fair value is required to be disclosed. The following is a summary of the carrying amounts and estimated fair values of these financial instruments:

		January 31, 2020					October 31, 2019
(in thousands)		Carrying Value		Fair Value	Fair Value Level		Carrying Value		Fair Value	Fair Value Level
Loan to affiliate	$	5,000	$	5,000	3	$	5,000	$	5,000	3
Debt	$	620,722	$	666,699	2	$	620,513	$	658,615	2

As discussed in Note 19, on December 23, 2015, Eaton Vance Management Canada Ltd. (EVMC), a wholly-owned subsidiary of the Company, loaned $5.0 million to Hexavest under a term loan agreement to seed a new investment strategy. The carrying value of the loan approximates fair value. The fair value is determined annually using a cash flow model that projects future cash flows based upon contractual obligations, to which the Company then applies an appropriate discount rate.

The fair value of the Company’s debt has been determined based on quoted prices in inactive markets.