Investments

12 Months Ended

Oct. 31, 2020

Investments [Abstract]

Investments

4.Investments

The following is a summary of investments at October 31, 2020 and 2019:

(in thousands)		2020		2019
Investments held at fair value:
Short-term debt securities		$	269,802	$	297,845
Debt and equity securities held by consolidated sponsored funds			376,098		514,072
Debt and equity securities held in separately managed accounts			93,278		76,662
Non-consolidated sponsored funds and other			10,497		10,329
Total investments held at fair value			749,675		898,908
Investments held at cost			20,928		20,904
Investments in non-consolidated CLO entities			1,116		1,417
Investments in equity method investees			11,527		139,510
Total investments(1)		$	783,246	$	1,060,739
(1)	Excludes bank loans and other investments held by consolidated CLO entities, which are discussed in Note 6.

Investments held at fair value

The Company recognized gains (losses) related to debt and equity securities held at fair value within gains and other investment income, net, in the Company’s Consolidated Statements of Income at October 31, 2020, 2019 and 2018 as follows.

(in thousands)	2020		2019		2018
Realized gains (losses) on securities sold	$	(6,223)	$	(505)	$	6,951
Unrealized gains (losses) on investments held at fair value		(13,580)		20,416		(22,814)
Net gains (losses) on investments held at fair value	$	(19,803)	$	19,911	$	(15,863)

Investments held at cost

Investments held at cost primarily include the Company’s equity investment in a wealth management technology firm. At both October 31, 2020 and 2019, the carrying value of the Company’s investment in the wealth management technology firm was $19.0 million.

Investments in non-consolidated CLO entities

The Company provides investment management services for, and has made direct investments in, CLO entities that it does not consolidate, as described further in Note 6. The Company’s investments in non-consolidated CLO entities are carried at amortized cost unless impaired, at which point they are written down to fair value. At October 31, 2020 and 2019, the carrying values of such investments were $1.1 million and $1.4 million, respectively. At October 31, 2020 and 2019, combined assets under management in the pools of non-consolidated CLO entities were both $0.4 billion.

The Company did not recognize any impairment losses related to the investments in non-consolidated CLO entities for the years ended October 31, 2020 and 2019. The Company recognized $0.2 million of

impairment losses related to investments in non-consolidated CLO entities for the year ended October 31, 2018.

Investments in equity method investees

The Company has a 49 percent interest in Hexavest Inc. (Hexavest), a Montreal, Canada-based investment adviser. During fiscal 2020, Hexavest experienced a decline in managed assets and associated management fee revenue driven by declining market prices of managed assets and client withdrawals, which translated into a decline in the fair value of our investment to $32.7 million and $11.4 million at July 31, 2020 and October 31, 2020, respectively. The Company determined that the decline in fair value as of both these dates was other-than-temporary due to the significant difference between the carrying values and the estimated fair values of the investment. Accordingly, the Company recognized other-than-temporary impairment charges of $100.5 million and $21.7 million as of July 31, 2020 and October 31, 2020, respectively ($122.2 million in total) to write down the carrying amount of its investment in Hexavest to fair value at each date. The impairments were recorded as a component of equity in net income (loss) of affiliates, net of tax, in the Company’s Consolidated Statement of Income.

The fair value of the Company’s investment in Hexavest was estimated as of June 30, 2020 (for the Company’s third fiscal quarter) and October 31, 2020 utilizing two equally weighted valuation techniques, which included a discounted cash flow methodology under the income approach and a guideline public company methodology under the market approach (level 3 fair value measurements). The same valuation techniques were used for both periods; valuations were prepared with the assistance of an independent valuation firm and approved by management. At June 30, 2020, the discounted cash flow methodology estimated future cash flows of Hexavest using revenue forecasts developed at the individual customer level, a long-term projected revenue growth rate of 3 percent and a discount rate of 14.5 percent. The market approach ascribed a value to equity interests in Hexavest by applying a multiple to earnings before interest, taxes, depreciation, and amortization (EBITDA). A multiple of 6.5 times Hexavest’s projected fiscal 2021 EBITDA was used for the June 30, 2020 valuation. A second valuation of the investment was performed as of October 31, 2020 due to additional outflows experienced by Hexavest which were not anticipated in the discounted cash flows used to value the investment in the third quarter. The second valuation maintained the revenue growth rate at 3 percent and increased the discount rate to 17.0 percent for the discounted cash flow model. A multiple of 6.0 times projected fiscal 2021 EBITDA was used for the market approach as of October 31, 2020.

The impairment charge was allocated to investor basis differences using the fair value method. The new basis differences are summarized in the table below.

(in thousands)		2020		2019
Equity in net assets of Hexavest	$	7,914	$	5,466
Definite-lived intangible assets		4,668		19,486
Goodwill		-		116,319
Deferred tax liability		(1,226)		(5,243)
Total carrying value	$	11,356	$	136,028

The Company’s investment in Hexavest is denominated in Canadian dollars and is subject to foreign currency translation adjustments, which are recorded in accumulated other comprehensive income (loss).

The Company also has a seven percent equity interest in a private equity partnership managed by a third party that invests in companies in the financial services industry. At October 31, 2020 and 2019, the carrying value of this investment was $0.2 million and $3.5 million, respectively.

During the years ended October 31, 2020, 2019 and 2018, the Company received dividends of $7.4 million, $10.9 million and $12.2 million, respectively, from its investments in equity method investees.